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MBIE has released an update on the new licensing regime, in which it said it expected 10 per cent, or about 900, of the current AFA and RFA adviser force to not transition to the new environment.
Adviser coach Tony Vidler said he expected the final number to be higher.
He said, while he would not expect 900 to drop out in two months, it would not be surprising to see 15% or 20% to drop out over the next 18 months.
He said the statistics indicated that there were a lot of advisers aged around 65 or 70 who would not want to pay the price of change to continue to work for a limited time.
Some might opt to become nominated representatives, with fewer obligations, and more could have a role in mentoring, coaching, governance and compliance.
“There’s a lot of experience there to lean on."
Russell Hutchinson, of Chatswood Consulting, agreed 900 was too low an estimate.
But he said it would be possible to lose the bottom 25% of advisers without affecting production much.
Part-time advisers would not have the time or resources to spend on better business systems, he said.
People should not picture a conference and imagine 900 advisers gone from that, he said. Those who would drop out were likely those who were less engaged with the industry, anyway.
Hutchinson said there could be equity issues if female advisers were making use of the industry’s potential for flexible part-time hours to balance other commitments and found they could not continue to do so.
Vidler said advisers deciding on the best approach to take through licensing would have to decide what they wanted to achieve with their own businesses and how much control they wanted to have over their decision-making,
Those in the AFA space already would be well-positioned to cope with the new rules but many RFAs would have a “heck of a lot of work to do”, he said.
Many were good advisers who did not have the business processes set up, he said. But the FMA would want to see they had a good professional practice that would stand up to licensing. “The commercial aspect is a big change.”
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Firstly from the perspective of an RFA: Whilst there is an increased education hurdle looming for many RFAs, the ability to discuss a wider range of subjects with consumers must surely be appealing. Despite the opportunity I tend to agree with Russell’s thinking that future compliance hurdles (and the industry rhetoric around these) will undoubtedly see a number of ‘part-timers’ exiting the industry.
From the perspective of AFAs: there are currently circa 1,800 AFAs with an average age of mid/late fifties. Whilst many are considering their exit strategy, the reality is that financial services provides a steady income for most, with limited willing and able buyers to available relieve them of their books at a reasonable price (Note: I use the term “books” deliberately, as many industry participants don’t have entities that are survivable without their day to day involvement). The obvious strategy here is to establish a succession planning exit – which arguably is 3-5 years at best in the making. I’m not so sure that the industry will see a huge exodus from this community, with many readying themselves for the impending burden of compliance – albeit under sufferance.
And finally the consumers: Whilst it can be argued that the wave of consumers requiring financial advice will grow, it can also be argued that the ratios of financial advisors to consumers will dramatically decrease (some would see this as the perfect storm). The commercial reality is that bespoke financial advice will be available for those consumers who are willing / able to pay, with the vast majority having to rely on themselves or tick-box solutions to assist. The net result will be a heavily fragmented audience, being exposed to a wide range of ideas, making it difficult (near impossible) for any meaningful regulatory oversight.
Whilst the future solution is a delicate balance between stabilising consumer confidence and supporting the financial services industry, previous commentators encouraging the regulator to allow the industry time to pause and digest recent changes are probably prudent. The butterfly effect of forcing change may actually end up increasing the burden for consumers and the regulator alike.