Exits from the financial advice industry have resulted in a significant advice gap, with many Australians unable to access advice in an economical manner, notes the global management consultancy Oliver Wyman.
In its report entitled “Future of Financial Advice – The Australian Renaissance”, Oliver Wyman says that in the wake of the findings, and subsequent recommendations of the Royal Commission in 2018-19, nearly 15% of advisers have exited the industry and the remaining players are facing immense margin pressure and, worse, needing to address the significant trust deficit.
The report attributes the exit of financial advisers to the removal of commissions and grandfathering and the rising cost of advice, including compliance and the impact of the Financial Adviser Standards and Ethics Authority qualification requirements.
The report estimates that only one in 10 Australians have received advice, with just under A$1tn ($768m) in assets under advice. However, approximately A$3.6tn is non-advised comprising largely of mass-affluent and mass market consumers.
Currently, few providers have a viable model for the mass market in Australia. Generally, financial advice business models have been focused around those with high net worth, and to some extent, the affluent segment as well, leaving the mass market segment underserved.
Oliver Wyman predicts the following developments in the independent financial advice (IFA) sector:
Advice models will align along segment lines, with traditional high touch models targeted at those with more complex needs, and digital D2C models offering more focused and clear value propositions to other segments
Regulatory changes and consumer demand for impartial advice will further catalyse the growth of the IFA sector, with the emergence of large groups and small standalone players
Investments in digital technologies will be required to improve the experience offered to customers, while also reducing service costs and compliance burdens
Scale will be critical, with larger advisers likely to pursue growth via selective inorganic opportunities to justify technology investments
As the market stabilises over the next five years, financial advisers will need to take decisive action to prioritise target customer segments, align the value proposition and offering, and make underlying investments in data and technology.