If some estimates of adviser exits from the industry are to be believed, Australia’s investors and consumers will be the losers.
Last week, Adrian Raftery, an associate professor of financial planning at Deakin University, took to social media to suggest that as much as a third of the financial advice industry may head for the exits before the new professional standards regime comes in.
Responding to CoreData figures that indicated 16.5 per cent of the industry may choose to retire rather than upskill, the outspoken academic went further.
“Of course they are leaving the industry,” Dr Raftery said.
“Every conference I go to they say ‘my retirement date is 32 Dec 2023’. The thing I disagree with [is the estimate that] 16 per cent [will leave], as my estimates have it closer to 21-34 per cent.”
Putting to one side the slightly dubious scholarship of drawing conclusions from casual analysis of conference chats, were Dr Raftery’s predictions to come true, the impact on the industry, and indeed on Australia’s retirement system, would be profound.
I understand the temptation for the government in mandating professional standards. It makes them look tough on an industry that has a negative public perception, without harming the institutions and lobbyists that fund their campaigns.
In fact, by providing the banks with a press release excuse and industry associations with a new revenue stream, mandatory standards actually does them a massive favour.
Mandatory educational standards might be politically expedient, but are not in the public interest.
Consumers – particularly at the lower end of the socio-economic spectrum – will lose access to up to a third of the available advisers in the market. Given the industry is already reaching too few Australians, this is sub-optimal to say the least.
The industry’s longest-serving practitioners, with decades of life experience and a record of trusted advice, will be pushed aside in exchange for a new breed of adviser who is much better at regurgitating the contents of a textbook.
As Michael Phillips of Phillips Family Office told ifa following his receipt of the Holistic Adviser of the Year award at Thursday’s ifa Excellence Awards, he would be well into his 70s by the time he finished his new studies under the new regime – a ridiculous impost on someone who is already an award-winning member of his profession.
To adopt a ‘Rafterian’ approach to market analysis, many of the advisers I speak to at conferences do not just refuse to up-skill because they are too lazy to study.
Some protest the new regime’s focus on academic rather than life experience and on investment rather than psychology or emotional intelligence. Others oppose the new regime on the basis that the government – and particularly a Coalition government – should not have the power to dictate professional standards in the private sector.
Some believe that by complying with the new regime they are accepting the argument that lack of technical knowledge – rather than unethical behaviour or conflicts of interest – are to blame for the industry’s poor reputation. Others simply have too much pride in the great client work they have performed over a lifetime to pack up their bags and head off to class.
All of these responses are a fair reaction to a policy that is all about appearances and not problem-solving, all about crony capitalism and not the consumer interest.
Given that the organisations tasked with representing advisers politically are all very much in favour of the new laws, seeking repeal of the professional standards regime seems like a fruitless pursuit.
Instead, perhaps they could look to the UK for an example of how to stay in the industry with dignity instead of leaving in a huff.
Gillian Cardy, founder of the IFA Centre UK, told delegates to IFA-CON last week that many British advisers who did not meet the new education standards there ultimately stayed in the industry, but not in client-facing roles. They stayed on as mentors and managers to ensure junior advisers didn’t just blindly believe everything they are told at university or PD days and to ensure the long-term prosperity of the business they have built.
This approach may be sensible for those veteran advisers who have decided not to up-skill. Losing you completely would be too great a loss.
Dr Raftery famously posted a photo of an empty classroom recently, sparking a viral debate about the work ethic of Millennials and their approach to education.
The government has stepped in to help academics fill their rooms, intervening in the affairs of the industry in the process and providing what spin doctors call an effective ‘bandaid’.
ifa respects those professionals who refuse to play ball.
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