People are not going to be flocking to enter the financial advice industry as there are too many roadblocks and what will be left are advisers only advising the big end of town that can afford it, according to Connect Financial Service Brokers.
Connect chief executive, Paul Tynan, said the industry was too hard to enter for graduates and the only way to succeed in financial planning was to be self-employed but those salaries would be low.
“Some of the big salaries in the past have been paid by institutions, and they've forced up those salaries but they're not around anymore,” he said.
“I've got people coming out of banks and they come to me and say ‘Oh, Paul can we buy a business?’ ‘No, there’s no stock.’ ‘Oh, are there a lot of jobs going around?’ ‘What are you on?’ ‘300,000’ ‘No one's playing $300,000 in the real world’.
“So, there's a real big reality check for everyone in the industry, right from the politicians down. All the politicians know they’ve stuffed up.”
Tynan said there were a lot of buyers who were coming out of the institutional side looking for smaller advice firms but that there was a lack of stock.
However, Tynan noted that there were not many professions that could earn a lot of money like in financial planning.
“I can't tell you about any other profession that can actually earn a lot of money. For example, I sold a business this year for say, seven times EBIT [earnings before interest and taxes] for over $10 million with 93 clients because the adviser said ‘stuff the industry’,” he said.
“No other business makes that kind of money. That’s the other side of the business and these people are not affected because the people they give advice to can afford advice.
“That's why advice now is elitist and it hasn't affected all people with money. It's only affected people who haven't got money – the ones that really need advice.”
Tynan said experienced financial planners could really help the system but a lot of them just “shook their heads” and said it was too hard to give advice as it was too bureaucratic, too much paperwork, and there was too much red tape.
“What economics 101 says is that if you're going to have less advisers and there is a need for advice, it's the place to be,” he said.
“You can make a fortune in the next 10 years and some people will if they've got the right business model.”
When asked what the right business model was, Tynan said it was to “forget about trying to look after mom and dad, and the majority of Australians who need advice the most – forget them. I'm sorry, the big end of town will pay for advice”.
Tynan said suggestions to make advice more affordable and accessible to consumers were:
- There needed to be an independent review into financial advice (experienced advisers should be a part of this process);
- The Australian Securities and Investments Commission operational mandate had been ineffective in the protection of consumers, so it is important that the new single disciplinary body is proactive and not reactive in reviewing advice standards;
- The regulators should produce clear guidelines to separate advice and products;
- There must be a recognition of past studies and experience in the Financial Advice Standards and Ethics Authority education requirements;
- The current pathway to attract new advisers into the industry is not workable and needs to be reviewed; and
- Associations representing advice and products should be encouraged to merge – this would show some industry leadership.