The findings, and subsequent recommendations, from the Royal Commission in 2018-19 triggered a collapse of the Financial Advice industry in Australia, with nearly 15% of advisers exiting the industry and remaining players facing immense margin pressure and, worse, needing to address the significant trust deficit.
Moreover, the result has been the creation of a significant advice gap, with many Australians unable to access advice in an economical manner. We estimate that only 1 in 10 Australians have received advice, with just under $1 trillion in assets under advice. However, approximately $3.6 trillion is non-advised comprising largely of mass-affluent and mass market consumers.
Lessons from adjacent markets of UK and US financial advice industries, and Australian general insurance broking offer financial advisers’ routes to addressing both the trust deficit and advice gap:
Advice models will align along segment lines, with traditional high touch models targeted at those with more complex needs, and digital D2C models offering more focused and clear value propositions to other segments
Regulatory changes and consumer demand for impartial advice will further catalyse the growth of IFA sector, with emergence of large groups and small standalone players
Investments in digital technologies will be required to improve the experience offered to customers, while also reducing service costs and compliance burdens
Scale will be critical, with larger advisers likely to pursue growth via selective inorganic opportunities to justify technology investments
As the market stabilises over the next five years, financial advisers will need to take decisive action to prioritise target customers segments, align the value proposition and offering, and make underlying investments in data and technology. We believe these actions are necessary to re-establish trust in an important sector in the wealth management landscape.
Ethan Paul and Matthew Flower also contributed to this report.