Speaking on an upcoming episode of the Relative Return podcast, Nick Eatock, CEO of intelliflo, a digital advice provider, delved into the parallels between the advice industry in the UK and Australia, shedding light on why he anticipates a swift resurgence in the number of advisers in Australia.
Mr Eatock explained while the Retail Distribution Review (RDR) of 2012 resulted in a lot of adviser losses in the UK, having imposed a fee-based advice model and eliminated commission-based sales for financial products, it ultimately led to a drastic improvement in the quality of advice provided.
“What we saw, just before RDR went live, in the two, three months beforehand, the advice numbers dropped dramatically, just as they have done in Australia with the royal commission and so on. But what happened as a result of that was that, actually, advisers ended up having good conversations with clients,” Mr Eatock said.
“The reality was that clients were very accepting of the approach, so I didn’t hear a single adviser actually say that they’d had a challenge.”
He noted that although the RDR narrowed the scope of advice in terms of the client base reached, it also brought about enhanced transparency, measurability, and engagement in the advisory process.
Most notably, he added, it resulted in advisers recognising the upsides of technology.
“Technology became the enabler to enable advisers to get out to their clients and provide the service they did.
“And what we saw over the subsequent years was that the number of advisers grew, year on year. Alongside that, a whole bunch of new people came into the industry in the form of paraplanners as well,” Mr Eatock explained.
He believes that a similar scenario will play out in Australia.
“Essentially, it ended up becoming a good news story,” Mr Eatock opined.
“We still have an advice gap that I think was created by it, which is the not so good news story, but that has narrowed slightly over the years, as advisers have delivered their advice to more people, and we expect that to grow.
“So then, when you paint that against the Australian market, I think exactly the same thing is happening, just years down the road. We’ve seen the adviser numbers drop significantly, but we think that they will bounce back”.
Much like the Future of Financial Advice (FoFA), the RDR sought to improve the clarity and comprehensibility of fee structures and services offered by financial advisers.
The RDR also introduced stricter qualification requirements, mandating that advisers attain a higher level of expertise and knowledge similar to Australia’s Financial Adviser Standards and Ethics Authority (FASEA) exam.
While the RDR did lead to a reduction in the number of financial advisers in the UK initially, as some individuals left the industry due to the changes, it aimed to create a more professional and client-centric advice landscape.
Looking forward, Mr Eatock predicted the Quality of Advice Review (QAR) would instigate a stronger shift to digital technology.
“What we’ve observed in the UK is they’ve [advisers] used the technology we and others provide, then it’s actually helped enable those advice businesses to provide advice to people who aren’t just at the very top end of the wealth spectrum. It probably hasn’t gone far as I would like it to go, but it’s definitely trending in the right direction,” he said.
“So I think, as we see in Australia, as we come out of the next year or two, Quality of Advice Review and so on, then I think what we will see is, through the access of choices of technology systems for advisers in Australia, and hopefully those advice tools that are better integrated together, I think we’ll see that advisers are able to actually service clients, investible assets below where they’re currently.”
To hear more from Mr Eatock, tune in to Relative Return.
Dreamers will keep dreaming. Financial advice is for the top 5% of the population.
He has completely ignored the education requirements. If an 18 came to me and asked if they should complete an accounting or financial planning degree I would give them two options:
(1) Basically no compliance of you operating on an unlicensed basis, lower fixed costs, clients that come back each year, a wider range of possible careers as you progress and two professional bodies that are very good at lobbying the government; or
(2) An inherently high risk of being sued if anything negative happens to your client, an almost guaranteed fact that something negative will happen to your client as markets do go down, exceptionally high fixed costs, an unwieldy and complicated compliance regime for clients to continue paying you a fee, exceptionally narrow career options, continued bombardment of negative press by industry super, consumer groups, ASIC and AFCA and an professional body that has watched the profession you work in be destroyed and if anything has helped financial planners be kicked on the way down.
I know which one I would be taking if I could start again.
It should be pretty straightforward to determine how many advisers will be entering the industry for the next 4 years. Next year the maximum will be the number who started their professional year, and the year after that the maximum will be the number doing their final year of a FP degree, etc.
It looks like the numbers are about 300 a year. That means it will take about 30 years to make up for the 10,000 lost.
The numbers should drop off though, because obviously it will be better to miss the degree and get an entry level position with a super fund. Then you dont have to worry about SOAs, code of ethics, none of the problems with ASIC Registers. And you get easy access to a captive client list filled with people who probably dont understand how you are being paid and you can give any advice on in-house products that you want, you just say to the client that it is ‘good advice’, so everything is cool.
There are significant differences between our experiences with fee reforms. Australian advisors faced a considerable burden of regulatory requirements, while we both navigated through the changes. Additionally, when considering the number of 18-year-old students starting their university journey, it’s highly unlikely that a large portion will opt for a specialized Financial Planning Degree compared to a more comprehensive Commerce Degree. It’s worth noting that individuals who pursued a Commerce Degree now have the additional obligation of completing a Graduate Diploma. No doubt we’ll witness Super funds hiring qualified Financial Advisers who have received training from esteemed sales institutions like Harvey Norman and JB Hifi.
These days, even a Masters doesn’t get you anywhere. The representative at a Mercedes dealership has a MBA and prefers to sell used cars.
Our “profession” is competing against others for graduates and blind-freddy knows we have a long way to go before we can compete with the those gravitating towards accountancy, corporate advisory and investment banking. Until then, adviser numbers will continue to be subdued.
Yeah. True. There’s no way I would want to soley focus on financial planning or advisory considering the laws and red tape. I’d opt for a Generic Bachelors in commerce.
…adding to this, a Financial Planning degree is not readily transferable to another discipline, thereby limiting future opportunities. For many, it’s too late to change careers.