Should we worry about financial advisers leaving in droves?
CRACK-DOWNS on dodgy financial advisers over the last eleven-and-a-bit years, starting with the Ripoll Inquiry and ending (for now) with the Banking Royal Commission is having the desired effect. Dodgy financial advisers are leaving the industry in droves.
But an unintended effect has also become apparent. The financial advisers who are staying (and not all are dodgy) are advising wealthy clients only and intentionally getting rid of ‘poor’ clients.
Under current legislation a wealthy, sophisticated investor must have $2.5 million in assets or an annual income of $250,000 for at least two years in a row. Clearly, that cut-off leaves a lot of investors high and dry.
The Australian reports Perth adviser Steve Blizard of Roxburgh Securities, as saying, “I can assure you that most smaller practices are ‘transitioning’ smaller clients out the door. When you can only charge $500 per annum for small clients, and it costs $1,000 in time to chase up the annual renewals and service support fees, what to do next becomes a harder reality.”
The Australian goes on to say that lack of suitable personnel becomes ever more evident, and that a recent Adviser Ratings survey at nine universities found that only 28 per cent of those studying for a financial planning degree end up working at an advice firm.
Financial advisers have been complaining ever since Ripoll first scrutinised their industry about the ‘compliance burden’. But rather than taking the initiative to reform their industry and turning themselves into fee-for-service professionals, they continued as much as possible to stick to the old model where they were, first and last, financial product salespeople on fat commissions.
The truth is that the financial advice industry is currently not set up to provide high volumes of advice at a reasonable price to ‘unsophisticated’ investors. But it could be.
Should we worry about financial advisers leaving the industry?
Probably not. When they were in it, they were overcharging unsophisticated clients and often selling them unsuitable financial products.
A new market is emerging where professionals prepared to explore the obvious gap between general and specific financial advice can flourish. Perhaps they won’t make as much money, but surely, they can turn an honest dollar.
Old-school financial advisers, who needs them?
The Financial Planning Association of Australia responded to this article in a media statement which can be found here.