Financial advice in Australia is facing a sustainability challenge
Caught between the pincers of rising costs – including a 160% increase in the ASIC levy over 3 years – and falling revenues (Adviser Ratings estimates a 58% decrease in average adviser income after the removal of grandfathered commissions), the financial viability of advice is being challenged like never before. Indeed, the CEO of one publicly listed advice group has claimed most licensees are either losing money or are marginally profitable at best.
Many advisers are voting with their feet, seeing the number of active advisers in decline, and on track to be 50% lower than pre-Hayne levels.
Against this backdrop, however, are fundamental indicators which should be cause for optimism for those who can weather the storm and adapt. The most important of these is the continued growth in the demand for advice.
According to Investment Trends, the number of consumers expecting to see a financial adviser in the next 2 years is over 2.5 million – more than double the number seen in 2015.
Meeting this demand will be the challenge for a reshaped advice profession. The shift away from larger, institutional licensees to smaller boutique firms sees 55% more AFSLs now than in 2015[6]. Many of these smaller firms will lack the resources of larger businesses including access to capital, and experience, knowledge and infrastructure around operational fundamentals such as financial reporting, planning, HR, marketing and risk management.
To survive and thrive in a disrupted marketplace, smaller advice practices need to embed a sustainability focus into their planning and ongoing operations. Viewing sustainability through a risk management lens is one way to do this, and for the benefit of practice principals we have produced a practical checklist of important business risks to be measured, monitored and mitigated.
At a high level, the key strategic and operational areas for practices to assess through a risk management lens include:
- design and documenting of key processes (including compliance)
- financial management
- reputation/brand
- insurance
- succession planning
- target markets
- client retention
- staff retention.
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