And now for some good news

After several tough years for financial advisers, there has been some good news lately. Yes, really.

Not the election results and political promises, or adviser education standards, or the Quality of Advice Review, or the Australian Law Reform Commission (ALRC) review into financial services legislation because the ultimate outcome of all those things is still some way off.

Instead, there are several pieces of research which all say similarly positive things about the future of the financial advice profession for years to come. 

MILLENNIALS

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Firstly, there’s ‘five financial truths about millennials at 40’ research drawn from the 2021 Natixis Investment Managers survey of investors around the globe. As the report says, while it may come as a surprise for some, millennials are no longer ‘20-something hipsters obsessed with avocado on toast and Instagramable experiences’ anymore.

This research reveals millennials want personal financial advice – in fact, those with minimum investable assets of $100,000 are already much more likely to work with a financial professional (40%) than rely on robo-advice (7%), although many (19%) use a combination of both.

The even-better news is that almost nine in ten (88%) of the millennials surveyed said that when it comes to their finances, they trust their adviser – only 81% trust their family, only 68% trust close friends and fewer than 25% trust social media.

According to Natixis, more millennials are already working with an adviser than either Gen-X or Baby Boomer generations. That’s quite a turnaround for the so-called smashed avocado generation. But then again, they are hitting middle age, have multiple sources of income, are getting married, starting families, building careers, growing businesses and running global corporations, so perhaps it’s not that surprising. 

GENERATION Z

What is arguably more surprising is Australian Investment Exchange Limited (AUSIEX) research that revealed that younger adults, those who belong to Generation Z (Gen Z), are also very interested in their financial future, as evidenced by the increasing number who are choosing to trade shares and invest in exchange traded funds (ETFs) AUSIEX’s Australia’s trading transformation research focussed on the trading behaviours of the generations amongst advised, advised (platforms) and self-directed investors, using trading data.

Last year, AUSIEX found many more investors entered the market during COVID-19. Demographically, while almost one in four (24.7%) advised clients are from the older Generation X, the number of millennials doubled from 3.8% to 8.4%, and the number of Gen Zs more than tripled to 1.7%.

Despite the market volatility over the last two to three years, clients of financial planners traded less than self-directed clients, who were described as having a ‘trading frenzy’. The reason for this, and one of the key benefits of having a financial planner is they are ‘focused on helping their clients execute on a strategy’.

Financial planners help clients avoid silly decisions at the wrong time and stay on track to achieve longer-term goals. This research acknowledged that financial planners “played an important role in the investor community by helping to address the concerns of clients who were understandably worried about the impact of the crisis on their investments”.

This research also revealed some interesting statistics about female investors. The findings indicate that new female financial planning clients have outnumbered new male clients every month since 2019, putting them on track to outnumber men overall as a percentage of the adviser’s client base some time in 2022.

SMSF INVESTORS

This year, AUSIEX produced research on its self-managed superannuation funds (SMSFs) clients: SMSFs under advice. Again, the research was across advised, self-directed and advised (wrap) investors. It concluded ‘advised SMSF clients have become younger, more female and more active, favouring a distinct mix of investment sectors and securities’. 

While most advised SMSF clients are from the older generations, the research says, ‘growth is coming from generation next with the self-directed segment signalling the change’. Around 5.5% of SMSFs are held by young self-directed investors, which is more than double the number held by young advised SMSF clients, something that may be explained by the cost of advice, at least in part.

Similar research from AUSIEX last year revealed that millennials represent the fastest-growing segment of new SMSF accounts (10% of all new accounts from 2020, double the rate over previous years). The number of SMSF accounts owned by Gen Z investors also doubled over the previous 12 months. 

This suggests vast numbers of people are becoming more interested in their investments and open to seek help from a financial adviser. And there’s better news about advised communities, via a recent University of NSW Business School study, Unsung Guardians.

This study found that financial crime has increased in areas where adviser numbers have fallen. There was an 8.8% increase in average fraud rates in local government areas with abovemedian financial adviser departures over 2018 and 2019. While that’s hardly good news, the opposite was true in areas with proportionately more advisers. That is to say that, according to the study findings, “establishing a long-term relationship with a financial planner can help to reduce fraud within the community”.

The authors concluded that “exposure to professional financial acumen improves public awareness of deceitful financial schemes and reduces communal fraud susceptibility”. This is another previously misunderstood benefit of professional personal advice being accessible, affordable and of the right quality for everyday Australians.

But the study then suggests that the forced higher education standards have served to “indirectly heighten industry quality despite mandates for higher education having no direct evidence of improving adviser performance”. Now that’s an interesting take.

It could be interpreted as:

• The adviser force has been slashed due to forced higher education obligations;

• In an environment of burgeoning demand for advice;

• From a larger slice of the population, and

• Those left standing have gone the extra education mile, but it has not improved adviser performance.

It could be suggested adviser performance has not been improved because most advisers were already performing exceptionally well long before onerous education obligations, with limited recognition of prior learning, were put in place. This leaves us to ponder whether the baby has been thrown out with the bathwater in an attempt to improve the financial advice landscape. That would be a resounding ‘yes’ in our opinion.

WHAT NEXT?

We need to re-populate our adviser force and enable advisers to provide the kind of bite-sized pieces of advice that people, particularly younger people, are likely to want. But as we all know, currently, numerous things are impeding that, and they are not limited to education standards. The code of ethics forces advisers to consider all aspects of the client’s situation, making it very difficult to provide scoped advice. Other obligations make it difficult to provide simple advice simply.

The requirement for evidence and lengthy statement of advice (SoA) documents, combined with a zero-tolerance on documentation in the client file, means it is also expensive to provide this kind of advice. As a result, many of those consumers and clients who want and need advice just can’t get the advice they want at a price they can afford.

As another positive, the profession itself has shown a great willingness to collaborate in order to change this state of affairs, with a record 12 associations working together on a joint submission to the Quality of Advice Review.

The Quality of Advice Review offers an opportunity to address many of the impediments to providing quality, affordable advice – but only if our freshly-minted Government can demonstrate the leadership, vision and commitment required to make it happen.

There is no doubt that the financial adviser’s role today is very different to 2004, when the financial services reforms first came in. All the traits and obligations of being a financial advice professional are already in place, including a focus on the client and not sales, tertiary level education standards, the financial adviser exam, continuing professional development, a code of ethics, internal and external dispute resolution processes, etc. 

The new Government should be satisfied that the Best Interests Duty (BID) is the adviser’s core and overriding obligation. BID compels advisers to provide advice that is in their clients’ best interests. The overlaying of additional, disclosurebased and often inconsistent regulation has done little to improve consumer protection and has instead resulted in access to affordable quality personal advice becoming much harder.

It should also be evident to the Government that the advisers remaining in our community enjoy the work they do for their clients and are absolutely committed to staying in the profession. These advisers like helping people arrive at better financial outcomes. After all the slings and arrows of the past decade(s), the advisers left standing are clearly those who have done everything they possibly can to stay in it. 

Despite years and years of experience and meeting all the educational requirements along the way, some of these people are going to university for the first time in their lives so that they can continue doing work they believe in. Some are returning to university, despite already holding closely-related master’s level qualifications and/or PhDs. And some of the people are well over the age of 70.

That’s what I call commitment.

Neil Macdonald is CEO of The Advisers Association.