A study of US financial advisers conducted by Cerulli Associates found that 28 per cent of those looking to exit the industry in the next 10 years are still unsure about their succession plan.
Speaking to ifa, Forte Asset Solutions director Steve Prendeville said that in Australia, these figures are “exacerbated above the US experience”.
Mr Prendeville noted that the average age of an Australian adviser is 58, notably higher than the US average of 50, and that “other exogenous factors” facing Australian advisers will also accelerate the need for retirement-type strategies.
“Primarily, that’s going to be the education requirements that are coming into place,” he said.
“Many principals that I’ve spoken with have said that will be the catalyst for their exit from the industry.”
The education requirements may also extend to responsible managers and board directors, Mr Prendeville said, which will make other advisers’ plans to move into less client-facing roles “redundant”.
Mr Prendeville added that the volume of Australian advisers with a “workable” succession plan is also likely to be much lower than the US.
“I would say around 10 per cent of Australian businesses have a workable succession plan,” he said.
“They may have it theoretically in place but as to it actually happening, the best timeline is five years so you would start to see some of those executed now and that’s not the case.”
Mr Prendeville said advisers considering their strategy for exiting the industry need to take stock of their business’ strengths and weaknesses and make sure they’re aware of their business’ current value, but warned value could decrease as the date for the introduction of education standards nears.
“We’re in a seller’s market at the moment, with significant demand and very little supply coming along,” he explained.
“If we get a significant switch from a seller’s to a buyer’s market, where we’ve got significant supply and even if we were to maintain the current demand, we’re going to see a devaluation of practices. It doesn’t take a lot to all of a sudden tip the scales from a seller’s market to a buyer’s market, let alone if we get additional impetus from the education requirements.”
In January, a poll of ifa readers found 75 per cent of respondents are looking to exit the industry in response to the introduction of the education standards.
Mr Prendeville will be discussing succession planning at the ifa Business Strategy Days kicking off around the country from tomorrow. For more information please visit: https://www.ifa.com.au/business-strategy-day
Love this comment why haven’t industry funds been investigated for doing rollovers without checks or consideration. You can’t make one lot of companies have a certain rules and then say industry funds are non for profit and then come under different rules. I think the whole issue of the government has with people have with commissions is crazy no one works for free, I would like to see how they like having their income reduced because we don’t think it is ethical to take money from old and stuff back into the governments pockets and always seem to have money to get pay raises hello hello franking credits – they target the mining companies then onto the next money grab
I agree Phil . . . just a shame the sky isn’t the limit with commissions anymore. I feel for the new entrants having to make it on such low upfronts. Bloody politicians, special interest groups and life companies are blind to these unintended consequences and won’t be told as they know it all. A good risk client base, I feel, will KEEP it’s value regardless of supply as with grandfathering it is irrelevant what new commissions are and it will simply keep delivering an income stream PLUS clients to speak with. best investment in Australia bar none! Think about it in detail and you’ll see!
You can make it on low upfronts or fee for service, you just need to actually provide a service worth paying for. Just shows how easy everyone has had it for so long.
Who decides the worth? Surely, not the poor customer at claim time?
The article overlooks the impact of education reforms on new entrants coming into the market as a result of new advisers having to hold a Financial Planning Degree. Let’s say you’re an adviser in Dubbo looking to sell their practice or appoint a young planner. The local Charles Sturt University offers a Bachelor of Business Degree with majors in Finance, Accountancy etc but as yet no Financial planning specialisation. A young person growing up in Dubbo and recently graduating will practically be required to have the equivalent to a Masters Degree to become a planner. Replace Dubbo and Charles Sturt with any other non-metro area and the issue is amplified.
Would a solution be a Finance degree plus a Diploma? Oh wait..Diploma’s are more frequently offered via the private sector and not Universities.
There are going to be some really great advisory businesses built in the next ten years through M & A, and organic growth. For those who wish to participate, the sky is the limit.
The productivity commission is highlighting the limitations of the banks reliance on sales incentives for their in house distribution. When they realise that quality advice businesses attract customers through quality of advice and service that should prompt the question – Why aren’t we doing more to engage with them ? A key area of support is in the area of succession planning which to date the banks have been reluctant to address. If they don’t, they put in jeopardy their future distribution as their existing practises are shut down and the quality businesses join international players that see the value of these advice practises.
The future for banks is not vertically integrated advice channels. But nor is it independent advice. It is selling high margin junk products via advertising. The Royal Commission and Productivity Commission need to be wise to this. FOFA and LIF have played right into the banks hands in this regard. Now the banks are now trying to stifle mortgage brokers as well. It’s all about removing the consumer’s access to expert third party advice so they are more easily duped by advertising.
The banks keep playing the govt & regulators off a break. Look at the boost to profits when they implemented APRA’s desire for higher interest rates for new investment loan borrowers right across their investment mortgage book. how does jacking up the rates on existing owners of investment properties assist in cooling the property market or increasing affordability for wannabe home owners??
The same will happen in insurance. The banks & insurance companies are happily selling into two market channels – advised & direct – with the direct offer seen on the TV ads being more expensive for policy owners for a lower quality product, compared to the retail offer. Or people can go to Industry Super and get a similarly keep, low quality product. Why is it that ASIC & others are so concerned about the fact that I get comms for recommending Insurance Cover that is better quality, lower price and with advice & support VERSUS a higher priced, lower quality offer from direct insurers or Industry Super Funds? Is the client outcome not important in any of this?