Almost six years on from commissioner Kenneth Hayne handing over the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in 2019, the financial advice profession continues to feel the impacts.
Arguably the most significant outcome of the royal commission was the extreme exodus of advisers in the years following, which saw around 40 per cent of the profession exit, reducing the number of advisers from around 28,000 in 2019 to just 15,500 currently.
Despite the challenges caused by this, Multiforte Financial Services director and wealth adviser Kate McCallum believes the royal commission was a crucial step in removing those that were causing harm to clients and tarnishing the advice profession’s reputation.
“At the time of the royal commission, I would say that the advice profession was like a city – most of the places are amazing, fun and safe to visit, but there were a few dark laneways that you would really want to avoid,” McCallum told ifa.
“The royal commission put a spotlight on the dark spots and helped to reveal and transform the areas that were not places you’d want to go.”
One of the most significant outcomes of the royal commission was the increased educational standards for advisers; however, McCallum believes the mishandling of this early on inflicted further unnecessary harm on the profession.
“The greatest downside was the initial failure in the educational standards to recognise certain degrees and advisers’ years of experience,” she said.
“There were people with economics, engineering or maths degrees whose qualifications were not recognised. Not to mention the invaluable experience of actually advising clients day-to-day – which by the way was accompanied by continuing professional development.
“This appears to have led to a loss of good advisers who otherwise may have stayed with the profession.”
Even with the initial harm, McCallum argued that having clearly articulated education requirements has been an overall positive, particularly for clients as they can be confident that their adviser is appropriately educated to help them manage their finances.
“Individuals used to be able to do a fast-track program, sometimes in as little as a few weeks or months, and put out their shingle as a financial adviser,” she said.
“This meant that an individual with five years’ experience or five weeks’ experience had the same standing – which is nuts in a financial world as complex as the one that we navigate for clients.”
Improved business practices
Verse Wealth chief executive Corey Wastle echoed similar sentiments, suggesting that despite the significant challenges of the last few years, the royal commission forced advisers to do away with some practices and evolve into a higher-quality profession.
“Business models have improved, the average quality of advice has improved, the average level of professionalism has improved,” Wastle told ifa.
“The barriers to entry from an educational standpoint have improved. That means we get more high-calibre people that are more committed to professional standards entering the industry and, as a consequence, we have a more professional industry.”
Wastle also noted the exit of institutions from advice, ushering in a new age of advice in which the ecosystem is largely dominated by independent advisers.
“Relative to the traditional approach institutions took to advice, advice now is more personalised, it’s more client-centric, it’s less product-centric, and ultimately, it’s more valuable to consumers than it was pre-royal commission, in most instances,” he said.
Adviser Ratings’ Q3 2024 Musical Chairs Report findings supported this notion, revealing that nine in 10 (89.9 per cent) advice practices and seven in 10 advisers (71.7 per cent) are under a privately owned licensee. Meanwhile, diversified (7.4 per cent), limited licensees, stockbrokers, industry super funds or not-for-profits, and bank practices continue to dwindle, making up just 10.1 per cent of the practice market.
However, with superannuation funds and other institutions expected to re-enter the advice space with the introduction of a new class of advisers through tranche two of the Delivering Better Financial Outcomes (DBFO) reforms, the future of the advice landscape is somewhat unclear and only time will tell what the on-flow effects of this will be.
While the royal commission has certainly inflicted a considerable amount of pain on the advice profession, Wastle believes there is a “bright future ahead” for those who have ridden out the storm.
“I do believe we are at an inflection point in financial advice where, after a couple of decades of regulation, we are at the precipice of a period of deregulation because we have so many professional pillars in place,” he said.
“The focus moving forward can be getting more advice to more Australians in an affordable way, wrapped up in great client experiences.”
I would totally disagree we’ve become more professional. Advisers have always had a degree of Professionalism but have a look at the FAAA, or Advisers that don’t want to become self licenced and prepared to outsource responsibility for their own actions to a licencee model…or even the structure where we permit the large licencee that thrives off poor and complex legislation…or using the inhouse MDA/SMA that underperforms due to an admin fee to the licencee..all evidence we’re part of a very unprofessional self serving industry. Pre the Royal Commission we knew who was conflicted and who were just the sales peeps. I also believe the way people charged advice was never reflective of professionalism. Just because the Adviser was paid a commision from a Super Fund in 1980 dosen’t make that person more or less a professional.
I spoke to two advisers this morning. One is submitting a TPD claim because their mental health is destroyed by the “profession”. The other one attempted suicide 6 months ago and most likely will do so again within 6 months. There might be a bright future for the 10 advisers that remain but until ASIC releases the boot from the throat of all advisers it will remain a terrible occupation to be involved with.
If you didn’t provide your child with an established business would you want them becoming a financial planner? Unless you hated them I believe the answer would be no.
The biggest problem with the RC was both it and the media completely misrepresented how many dark alleys there were. They frightened most consumers away from the plentiful sources of perfectly safe, professional advice that would have made them much better off. The RC also imposed ridiculous bureaucratic burdens on advisers which made their services unnecessarily complex and expensive. Consequently there are now far fewer consumers benefiting from professional financial advice than before the RC.
If the media had been honest, and Hayne had been competent, consumers would have had a much better outcome from the RC.
“However, with superannuation funds and other institutions expected to re-enter the advice space with the introduction of a new class of advisers through tranche two of the Delivering Better Financial Outcomes (DBFO) reforms, the future of the advice landscape is somewhat unclear and only time will tell what the on-flow effects of this will be.”
Looks like many more dark laneways are coming Kate…?
My fear is that the pain of obtaining recognition as a profession may be swept away by attempt to fill the advice gap with advisors based overseas, as has been suggested.
Like cockroaches, the bad advisers will still prevail, regardless of how high we, the good advisers, now have to jump.