The idea that financial advisers could be among the most sought-after employees in a few years time seems slightly preposterous, given the way the royal commission has widened the trust gap between the sector and the community.
But the numbers support that case, which was made by BT Financial Group’s general manager, Michael Wright, during a session at the Financial Services Council‘s annual summit in Melbourne on Wednesday.
With improved education standards looming, an end to grandfathered commissions likely and the rump of the Australia’s 25,000 advisers aged over 55, Wright argues more than 20 per cent of sectors advisers might exit the sector.
With 8 million Australians shifting into from the accumulation phase of their retirement planning to the draw-down phase between now and 2023, demand for advice is going to sky high, and top-notch planners are going to be hot property.
But here’s the big question that, based on the tension in the room during Wright’s panel, threatens to tear the sector apart: What sort of sector will these advisers be working in, five years on?
While Wright said the sector needed fundamental change, he stirred emotions when he insisted that the advice sector is not broken, and that the vast majority of advisers were doing a good job for their clients.
That was disputed by Pamela Hanrahan, the deputy head of the University of New South Wales’ school of business taxation, who pointed to industry surveys from the likes of the Australian Securities and Investment Commission that showed three quarters of advice did not demonstrate compliance with the requirement to act in the best interest of a client, and 10 per cent left the client worse off.
As Hanrahan, who is advising the royal commission, said: If there are good advisers, where are they?
Clare Mackay, the principal of independent advisory firm Quantum Financial, argued that suggesting that the bulk of financial advisers are doing a good job effectively creates a barrier to the reform the sector desperately needs.
For Mackay, the fundamental change is licensing individual advisers, rather than institutions; dual licensing of individuals of advisers and firms is something BT supports too.
For Hanrahan, adviser competency is key and other steps such as the banning of grandfathered commissions (a move which had brought support in the room) were important too.
The general thrust was that the sector needs to desperately professionalise if it is to win back the support of the community. Wright argued this would take time, and the adviser sector was only 30 or 40 years into a journey that surgeons, for example, had been on for 600 years.
He said BT would be working with universities and other bodies to try and bring through graduates who were highly skilled and passionate. But again this will take time, and as the chair of the session, Colin Tate, asked, will retirees want to take advice from a 20-something?
The views in the room highlighted just how wrought the process of reform will be in this sector, and left some big questions on the table.
Will tweaking the current structure of the advice sector really be enough, or are more wholesale changes needed?
Will the dismantling of vertical integration – should it happen – create other risks, such as removing the big capital buffers that the sector has enjoyed thanks to the fact advice businesses were owned by banks?
Will the process of professionalising the sector increase regulation increase compliance costs to the point where smaller players are forced out of the sector, reducing competition and creating another set of risks?
It would appear that parts of the sector are a long away apart on the solutions, but at least there does appear unity on the speed with which reform is needed, and acceptance that it will probably hurt the sector badly.
And it was Mackay who delivered the session’s best reminder of who needs to be put at the centre of solutions: “We all have jobs because of my clients.”