The report, Advice in 2030: The Big Shift, produced by Deloitte for Iress, surveyed 250 advisers on areas such as their business model, revenue, charging, and client base.
In the last five years, there has been a reduction in the number of advisers from 27,959 in 2019 to 15,819 in 2023. These numbers have fallen further since then to stand at 15,480 as of 18 July 2024, according to the latest Wealth Data figures.
The financial advice industry declined by 214 advisers over the 2023–24 financial year. However, this was still a stronger result than FY22–23, which saw a net loss of 633 advisers.
Looking ahead to five years’ time, Deloitte said the number of advisers is estimated to only grow by 1.1 per cent per annum to reach 16,708 by 2029.
Based on Deloitte’s numbers, growth from 15,819 to 16,708 is a gain of 889 advisers, representing 177 advisers each year.
However, the report added that their projections might be “conservative” given expectations for new market competitors and reforms aimed at making advice more affordable and removing some barriers to entry (e.g. certain exemptions for “non-relevant” providers).
Wealth Data calculations paint a more positive picture, with approximately 761 advisers joining in FY24. This is made up of 376 new entrants who are joining for the first time and some 385 advisers who are returning to the industry after a break. The gains are offset by the 975 advisers that resigned and ceased during the financial year.
Surveyed advisers said they expect their customer base to increase by 27 per cent on average over the next five years, bringing on 486,000 new customers from factors such as the rising retirement population and intergenerational wealth transfer.
Speaking to Money Management, John O’Mahony, finance lead partner at Deloitte Access Economics, who co-authored the report with Professor Deen Sanders, said: “That’s the key point from this research. There is a big advice need in this country; an extra 11.8 million people need advice and they may not have the wherewithal to pay the same amount as existing advised clients. So the unmet need is great, and it’s been recognised as a policy priority by the government, but the number of advisers isn’t there.
“We have had a halving of the sector over the last six years and the large players have exited. While we have seen some robustness of late and profit rates are back, there are some signs it has plateaued, and there could be some growth, but there is still a huge gap.
“If financial advisers believe they are going to get an extra 27 per cent growth in their customer base over the next five years, then something has to change in the business model because these numbers just don’t add up.”
As to how the business model can change over the next five years, he made four points:
- More customers per adviser.
- More technology supporting the provision of advice.
- Some combination of lower priced and premium products.
- Advice will get more complicated, consider specialisation.
Commenting on the expected figures, Wealth Data founder Colin Williams, said: “Overall, I just don’t see much in the way of growth right now. I wish I was wrong! The feedback I’m getting from those who are still providing advice is that for the most part, business is good, but it is coming at a cost. The cost is in time and stress, driven in part by the risks associated with providing advice.
“The new reforms don’t seem to be delivering better outcomes for either advisers or consumers looking for advice. This in turn leads to advisers needing to charge higher fees for the advice and most consumers are struggling to see the value.
“On the upside, I think you might see more advice businesses develop different models which will allow them to offer simpler advice through lower cost platforms and greater use of online technology. This approach won’t necessarily see an uptick in advisers, but rather advice businesses that can service more clients with the same number of advisers.”
Specialisation
O’Mahony said he expects there to be greater specialisation by advisers as advice gets more complicated, which will lead to a greater dispersion of fees. This could be broken down either by client type or by a specific area, such as ESG investments or retirement planning.
For example, an adviser targeting a younger client who is mostly aided by technology could charge between $2.1k and $3.8k, while those providing a complex retirement service could charge a far greater fee at $6.5k.
Advisers said they have a 22.2 per cent profit margin in 2024, up from 18 per cent in 2021, but O’Mahony said 25 per cent of advisers have a profit margin of 40 per cent, equating to $550,000 more business profit annually.
“Why wouldn’t you aim to be in the top quarter? Advisers should be aiming higher. There is no such thing as a single consumer. There is a spectrum of what consumers can afford, depending on what is being offered,” he said.
This ties into Adviser Ratings’ recent advice landscape report, which found the average advice practice generates more than $500,000 in yearly revenue with a 21 per cent profit margin. The most optimal advice firms reported profit margins of 40 per cent or higher. To achieve such profitability, these practices need to bring in a six-figure revenue above $1 million.
How much did IRESS pay Deloitte for this analysis? Not sure they are the arbiter of intelligent forecasting in this space. Assume to help with any sale of IRESS to PE.
Article makes no comment that the advisers leaving industry are older and have many years of work an life experience whilst the newbies are on learning trajectory.
This article appears to overlook the fact that there must be a fairly large group of advisers who missed out on the experienced pathway because they joined the industry within the 10 year exemption period and who will have not completed the necessary study by the end of this year. That has to result in further leakage that doesn’t appear to have been factored into these numbers?
Based on Deloitte’s numbers, growth from 15,819 to 16,708 is a gain of 889 advisers, representing 177 advisers each year.
I wish them luck with their forecast, but given the number of advisers in their 60’s and older my guess is we’ll settle at around 13,800 but of course I’m not counting Jones “Qualified Advisors”