The collateral damage from adviser exits

Financial adviser exits are continuing and the resultant decreasing market is having an impact on the industry’s service providers from industry representative organisations through to ratings houses, platforms, technology providers and even fund managers.

According to analysis of the flow-through effects of adviser exits, the addressable market for service providers will be between 30% and 50% smaller than it was at the end of 2021 and this is because not only adviser numbers have reduced but client numbers as well.

The impact of adviser exits on organisations such as the Financial Planning Association (FPA) and Association of Financial Advisers (AFA) is reasonably easy to track, with the FPA annual report revealing that its total number of members had reduced from 13,189 in 2020 to 12,049 in 2021.

But the more salient number in the FPA annual report was the number of actual practicing advisers in terms of Certified Financial Planners and Financial Planners which reduced from 9,275 in 2020 to 8,493. This then needs to be weighed against the fact that the number of advisers on the Financial Adviser Register (FAR) at the start of 2021 was 20,671 and by the end of the year was down to 17,689 with more declines expected.

According to CountPlus chief executive and former FPA chairman, Matthew Rowe the service providers who have traditionally taken a clip of the financial planning ticket are going to find business conditions tougher and more competitive.

And he said he included financial planning dealer groups in that equation because advisers would increasingly view them as simply service providers.

The service providers viewed as likely to come under pressure are the ratings houses, platforms, asset consultants, technology providers, compliance consultants and some fund managers.

Wealth Data principal, Colin Williams said there was no question that adviser exits were playing a role in reducing the addressable market but, so too, had the exit of the banks, the restructuring which had occurred within AMP and IOOF’s acquisition of MLC Wealth – something which had seen practice managers forced out of jobs

But Williams also pointed to a further impact on service providers, particularly fund managers, as a result of the ongoing consolidation flowing from merger activity amongst industry funds.

“And the scale some of those industry funds have achieved via mergers mean that they can dictate the price,” he said.

Williams said that the outlawing of product subsidies had also placed pressure on platforms pricing which, in turn, had impacted the commercial fundamentals of many licensees.

However, like Rowe, he suggested that those financial advisers who remained in the industry looked to be well placed in terms of a high demand for financial advice and more affluent clients.

Williams noted that while advisers had been exiting, the level of funds under advice had not commensurately reduced.