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Solving the advice experience gap

Dec 2022

In this article, Matthew Esler, Co-Founder of Padua Solutions, delves into the decline in adviser numbers, the gap in experience that’s been created as a result, and the shining light at the end of a very short tunnel.

The decline in adviser numbers

The exodus of financial advisers from the financial advice industry in Australia has been unprecedented. According to WealthData, adviser numbers grew to 24,866 by the end of 2016, 25,036 by 2017 and 27,929 by 2018. However, from the end of 2018 onwards, there was a steady decline in adviser numbers - 23,493 by end of 2019 (-15.88%); 20,627 by 2020 (-12.20%); and 17,169 by 2021 (-16.76%). Since the end of 2018 financial adviser numbers have fallen -43% from 27,929 to 15,908 as at 6th October 2022.

Adviser Numbers – End of calendar year (and Today)

Source: WealthData

There has been considerable conjecture across the industry around what level the decline in adviser numbers will bottom out as well as when it will occur. We believe that we have arrived at that number now – for two key reasons: Financial adviser exam extension period has ended; andGrowth in provisional and new financial advisers entering the industry is significant.

The Financial Sector Reform Amendment (Hayne Royal Commission Response - Better Advice) Regulations 2021 provided a 9-month extension for existing providers who sat the exam at least twice before 1 January 2022. This ended as of 1st October 2022 which means that if you were providing advice under the extension and have not passed the exam by now, you would have now lost your relevant provider status.

The growth in new & provisional advisers

The steady decline has masked the recent growth in provisional and new advisers – which have been very positive. The chart below highlights the quarterly growth of new and provisional advisers joining the industry over the past three years. There was very little development in 2019 and 2020 but we’ve seen considerable progression in 2021 and 2022 with an average growth of eighty (80) new advisers and provisional advisers combined per quarter for the past six (6) quarters. In the most recent quarter alone (Q3 2022), there were 143 new advisers and provisional advisers joining the industry.

Total provisional & new advisers & combined growth in last 3 years

The key to solving the advice experience gap

With so much experience having left the advice industry, combined with so many inexperienced advisers recently joining it, our focus now shifts to how we solve the advice experience gap. In the recently released QAR Consultation Paper, Michelle Levy and team state that a “better way to regulate the provision of advice is to start precisely where the current regime does not - with the content of the advice. Consumers want good advice – not documents and processes. And advice can be more easily measured and assessed than conduct.” Content will be the key moving forward… as well as advice data (but more on that later).

At Padua, we have built our business around advice. Padua’s co-founders are former heads of technical services. Advisers would phone our respective hotlines, seeking technical input for a particular client. Inevitably the discussion would lead to the client’s demographics – marital status, age, income, assets etc. Once the client’s demographics are ascertained you can determine eligibility (this is where the legislation and regulations come into it). Once you know eligibility you can calculate the maximum beneficial outcome of the strategy. Once this is calculated you need to determine the cost of the advice. Benefit minus Cost = Value of advice.

In order to provide high quality technical strategy at scale to existing advisers as well as the thousands set to join the industry in the next few years, we created a digital link between the client demographics (captured in our Discover fact find) and legislative parameters through our adviser recommendation platform, Recommend. This platform contains five hundred and seventy-eight (578) technical strategies covering all advice types – investment, insurance, super, retirement, debt management, budgeting and cashflow, aged care, estate planning etc. It acts like a “virtual technical manager” linking each strategy’s eligibility parameters to the client’s demographics. Can you imagine having a system like that when you first entered the advice industry?

So, before you go feeling sorry for these young new advisers in their professional year cast your mind back to the countless calls you made to technical services over the years. Those technical managers couldn’t tell you every technical strategy for which your client is eligible! This technology provides new advisers in their PY the same technical capability as an experienced planner with 20 years’ experience – therefore solving the advice experience gap. Padua will be releasing its new virtual technical manager within Recommend in the new year. It will surely be a happy 2023 to every financial adviser in Australia.

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