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'Adviser cull' could hit NZ

New Zealand financial adviser numbers could fall by up to 60 per cent over the next seven years, it has been predicted.

Saturday, October 7th 2017, 6:00AM 5 Comments

by Susan Edmunds

IFA chief executive Fred Dodds said it was possible that adviser numbers could drop by 60 per cent between now and 2024, as an ageing workforce combined with new regulation, roboadvice and a drop in risk commissions.

He said it seemed unlikely that risk commissions could continue at their current rate.

There are 1800 AFAs and 6400 RFAs in the market.

Many RFAs might not think it worthwhile to transition to higher requirements under the new legislation, Dodds said.

Scott Black, chief executive of Share, agreed how significant the fall could be would depend on how the new regime was implemented.

He said it remained to be seen how hard it would be for individual advisers to become licensed financial advice providers.

“All of the adviser groups have indicated that they will apply to become licensed entities, but many of the larger ones have said that their licence will not cover all of their advisers – so what happens to the balance of the advisers?

"They will have to find another FAP to join - and if they have not been taken on by their existing adviser group, then why would any other group want to assume that liability - or they will have to become their own FAP or alternatively group together with other adviser and form a FAP. That only becomes realistic if the cost and complexity of becoming a FAP for individuals or small groups is manageable.”

The competency requirements of the new code of conduct would also play a part, he said.

“For part-time and/or older advisers, if they determine that the education pathway is too difficult, it might be the catalyst to bring forward their retirement. A survey of 250 advisers recently indicated that as many as 23% of the advisers weren’t sure if they would still be in business in three years.

"A lot of that response may be fear of the unknown, but equally we could easily see a drop in numbers by between 10% and 15%.”

It would also depend on how banks and insurers responded, he said.

It was yet to be seen whether banks would want to continue to invest in their QFE adviser with increased compliance liability and potential education costs.

“The Aussie-based banks are all divesting their wealth management operation, will this be the catalyst for the New Zealand banks to drastically reduce their exposure in this area?

"Will the insurance companies retain their QFE advisers, or even look to establish new FAPs to provide a safe haven for high producing – but arguably ‘risky’ financial advisers who are cut loose from the adviser groups?”

A spokesperson for the Ministry of Business, Innovation and Employment said improving access to advice was one of the purposes of the Financial Services Legislation Amendment Bill.

“The bill includes arrangements that will allow existing industry participants to transition smoothly to the new regime. This includes a competency safe harbour under which existing industry participants can continue to provide advice while working to meet any new competence standards.”

Tags: financial advisers Fred Dodds Share

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Comments from our readers

On 7 October 2017 at 6:43 pm John Milner said:
Sounds like good news to me. I guess you just can't teach an old dog new tricks. I think a lot could be selling themselves short. Many will have a long history of experience and could easily attain the new minimum required qualifications if they applied themselves. Some might even be surprised that they may even enjoy the study, rather than fear it.
On 9 October 2017 at 6:41 am Pragmatic said:
It has been predicted for some years that the Australian banks will align themselves with their global counterparts, and significantly reduce their exposure to the wealth management business. As this unfolds (as it did circa the late 1980s for those who can recall), the talented bank-employed-advisers will use this as a foundation to launch their own independent practices. Given the aging industry population, many of these freshly minted advisory businesses will start gearing up for succession planning…. and so on. So despite having no idea what the final advisory numbers will be, it seems to me that there will be more “good” advisory businesses around as a result of changing industry dynamics.
On 9 October 2017 at 9:23 am dcwhyte said:
These dire predictions were being issued prior to the FSRA 2004 in Australia. In reality, the reduction in Advisers numbers was negligible. The truth is that it's impossible to predict with any accuracy what will happen, how the new regime will be applied, and whether life commissions will go up, down, or stay the same. We don't even know if the Bill will be passed in its current form. Given the recent and potential provider rationalisations, the uncertainty around the Beehive, the CWG not due to provide a draft Code of Conduct until April next year, and the (very) slow genesis of FinAdv NZ, I would have thought such speculation is pointless. The one statement I would encourage Advisers to contemplate is this -
Avoid making any decisions about your future without being fully informed.
Nobody knows for sure how these variables will play out, but there will be some who see this as an opportunity to take advantage of Advisers who are anxious, vulnerable, or fearful of the future. Bide your time and wait to see how all this unfolds.
On 9 October 2017 at 10:21 am Doddsy said:
I also said
Let’s not forget that the big issues of:

Underinsurance
Retirement Planning
Longevity
Getting in and out of debt

All need an adviser to assist the consumer through these turgid waters – let’s not give up these important persons!!
On 12 October 2017 at 11:45 am Majella said:
Thanks, David, for the calming voice...as to the much touted 'drop in risk commissions' that is, I sincerely trust, going to be left to the insurers to determine. It costs a lot to run an insurance practice, and commission is revenue, not 'profit'. Advisers in the $200K range of new business revenue probably take home $70-$80K after tax & expenses. That's hardly being overpaid. The old days of the tied agency mutuals, commission were low, for sure, but i had NIL expenses, and earned about what I do now, on similar API.

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Last updated: 8 December 2017 7:30am

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