Do advisers face being squeezed out of super?
Changes capable of impacting advice inside superannuation could see the role of non-intra-fund advisers all but disappear, according to the manager of policy and technical services at online advice business wealthdigital, Rob Lavery.
As well, Lavery believes that those arguing that accountants will readily fill the gap left by planners who depart in the wake of the Financial Adviser Standards and Ethics Authority (FASEA) regime may be well wide of the mark.
He said the discussion around accountants stepping in to an advice gap left by departing advisers had largely undervalued two major factors.
“The first is that the implementation of a number of reforms will result in a reduction in demand for traditional financial advice services. The second is the significant impediment to entering the advice industry that is the newly created professional year,” Lavery said.
“There are two dates that will see the greatest falls in existing adviser numbers under the FASEA reforms - January 1, 2021, the date by which existing advisers must have passed the new exam, and January 1, 2024, the date by which advisers must meet the new tertiary education requirements,” he said.
“Around both of these dates, other changes are likely to take effect that will result in a counteracting drop in demand for advice services.”
Lavery said that January 1, 2021 was a significant date for financial adviser revenue models because it was on this date that grandfathered commissions on superannuation and investment products would cease to be payable.
“2021 is also the year in which ASIC is due to conduct a review of life insurance and consider whether commissions paid to advisers should be allowed to continue. The maximum upfront commissions on life insurance will have already been halved by the Life Insurance Framework (LIF) reforms by the start of 2020,” he said adding that he believed these two factors would see a significant drop in adviser revenues.
“These two changes combined could see a drop in industry-wide adviser revenue of as much as 20 per cent, and that is without ASIC banning life insurance commissions altogether,” Lavery said.
“Furthermore, if you look at the future of advice on superannuation and retirement incomes, the Royal Commission’s recommendations on default super funds, coupled with government policies on superannuation income streams, could see the role non-intra-fund advisers play in this space all but disappear.”
“The proportion of adviser revenue attributable to advice on super and retirement incomes was identified by the Productivity Commission to be around 35 per cent,” Lavery said. “In the most extreme circumstances it can be seen that, while a large number of advisers may exit the industry, they are likely to be followed by a similar proportion because of the decreased demand for advice.”
He said he also believed the impediments to entering the advice industry as too high to encourage accountants to diversify their skills or switch professions.
“New advisers are now required to undertake a professional year,” Lavery said. “Accountants are no strangers to undertaking a professional year. The question is, would established accountants be willing to undertake a second one to become a planner? FASEA’s 1,600-hour professional year requirement would seriously limit any accountant’s income earning ability over this period.
“So, perhaps new accountants will fill this space. On this front they have two major hurdles – the double professional year, and the degree qualification requirements to become a planner. Rather than new accountants becoming hybrid accountant/planners, it is more likely that enrolments in accounting degrees will be cannibalised by an increase in enrolments in financial planning degrees. Rather than becoming both, budding professionals will choose one or the other and proceed straight down their chosen path.
"There is one potential joker in the deck, and that is the possible reintroduction of the accountants' exemption. In a review of the TPB, Treasury identified it as one of seven options. In any event, such a narrow exemption would only slightly overlap with the advice industry."
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