As the United States braces for what promises to be one of its most closely watched elections in recent history, a similar air of anticipation and uncertainty hangs over the Australian financial advice profession. Just as political pundits pore over state-by-state polls, trying to predict which way the electoral college will swing, financial products and vendors are closely watching the movements of advisers between licensees, attempting to divine the future shape of our sector.
The parallels are striking. In the US, a handful of swing states can determine the outcome of the entire election despite representing a relatively small portion of the population. Similarly, in our industry, the decisions made by individual practices - particularly high-performing ones - can have outsized effects on the success or failure of licensees and product providers.
As we approach the end of 2024, the financial advice profession finds itself at a crossroads. While the total number of advisers has primarily stabilised over the past few years, we're witnessing a remarkable reshuffling of the deck. Advisers are moving between practices and licensees at a rate that belies the apparent stability of the headline numbers. This month's update delves into these seismic shifts and their profound implications for our industry partners.
Key Industry Movements
Recent months have seen several significant shifts in the advice landscape that have sent shockwaves through the profession:
This restructuring reflects a growing trend towards more nimble, specialised advice businesses. It underscores the advice profession's ongoing evolution and the search for sustainable business models in the post-Royal Commission era. It also highlights the uncertainty facing both advisers and licensees as they navigate this changing landscape.
Data Insights from the 2024 Landscape Report
Our latest Adviser Ratings Landscape Report provides valuable insights into these trends. Let's examine some key findings:
Adviser Numbers and Distribution
While the total number of advisers has stabilised at around 15,600, we see significant movement between licensee types. The shift towards privately owned licensees continues, with a notable increase in advisers working under smaller, boutique licensees.
Interestingly, the data showed a decrease in advisers switching between licensees compared to previous years. On the one hand, this could suggest that many have found their preferred operating environment. On the other hand, it could indicate a 'calm before the storm' as advisers waited for the recent large licensee changes to unfold and weighed their options in light of recent industry shake-ups.
Changes in Adviser Distribution
This chart clearly illustrates the seismic shifts occurring in our industry. The steady decline in advisers affiliated with banks and other large institutions is mirrored by the rise of privately owned licensees, particularly those with 1-10 advisers. This trend towards smaller, more agile, practice-owned licensees has significantly reshaped the advice landscape and reinforced the rise of the "practice" era.
Practice Profitability: Big is not always better
These charts reveal an interesting trend: while larger practices generally show higher profitability, there's a sweet spot for mid-sized practices (2-4 advisers) achieving impressive profit margins. This suggests that efficiency and specialisation may be more important than sheer size.
The data also shows that practices with annual revenue between $1 million and $2.5 million are most likely to achieve profit margins above 30%. These practices benefit from the advice professional's proximity to the business and the client in executing the right business strategies through product and technology selection.
Impact of the Quality of Advice Review
The ongoing implementation of recommendations from the Quality of Advice Review (now part of the Delivering Better Financial Outcomes legislation) presents significant opportunities for licensees and practices. By simplifying the advice processes, licensees, in particular, can redirect resources to critical areas to support practices such as IT infrastructure and cybersecurity support rather than the traditional focus on tick-a-box compliance.
This shift in focus could be a key differentiator for licensees and practice support businesses looking to attract and retain high-quality advisers and practices. It also presents opportunities for technology providers who can offer solutions that streamline compliance in line with DBFO while enhancing the client experience.
The Importance of Practices: A US Election Analogy Revisited
Returning to our US election analogy, it's worth noting that just as presidential candidates focus their efforts on key swing states, industry vendors must pay close attention to individual practices rather than large licensees.
For our vendor partners - whether you're a super fund, life insurer, fund manager, or technology provider - this means looking beyond licensee-level relationships. Understanding and engaging with individual practices, their unique needs, and their client bases could be the key to success in this new landscape.
Consider a presidential candidate who wins Pennsylvania and Nevada but loses hundreds of small counties nationwide. They might win the election, but they'd enter office with a tenuous mandate. Similarly, a vendor who secures a deal with a large licensee but fails to resonate with individual practices may find their products unused and their position in the market precarious.
Looking Ahead
As we move into 2025, we expect these trends to continue. The advice industry is likely to see:
This evolving landscape presents both challenges and opportunities for vendors. Those who can adapt their offerings and engagement strategies to meet the needs of a more diverse and specialised advice market are not just likely, but certain to thrive in this new era of financial advice.
Just as political analysts will be poring over precinct-level data on election night, successful vendors in our industry will need to examine practice-level metrics such as client retention rates, adviser turnover, and revenue growth to understand the profession's direction.
ARdata is committed to providing the insights and data you need to navigate this changing environment, ensuring you are always well-informed and equipped to make the best decisions for your business.
In this time of uncertainty, one thing is clear: the future of financial advice will be shaped not by broad, top-down directives but by the collective decisions of thousands of individual practices.
Understanding these practices—their needs, challenges, and aspirations—will be crucial for anyone looking to succeed in this new landscape.