The number of financial advisers could fall between 40% and 50% over the next 10 years, according to the third Heath Report (THR3).
THR3 also asked about the retirement intentions of the 804 financial advisers surveyed over a five and 10-year period.
The results were as follows: nearly one third of single adviser firms will effectively have closed within 5 years; just over half the advisers in mid-sized firms (5-9 advisers) will have retired within 10 years.
The table below shows that: 21% of advisers wish to retire within five years, with one quarter of those wishing to retire immediately; only just over half the advisers see themselves staying in the industry for more than 10 years; hardest hit are the generalist firms, who could lose nearly 30% of their advisers within 5 years.
Further analysis of the data reveals that: 14% of all firms will have lost their advisers, due to retirement, within 5 years; 31% of all firms will have lost all their advisers within 10 years.
Why might there be a mass exodus?
Charlie Reading, director at Efficient Portfolio says: “The average age of an IFA is now around 59, so perhaps the increase in number of those in the profession taking retirement is the main reason. Historically, the training ground for advisers was rooted in large life company sales forces; as this type of training is no longer common, so entry into the industry is now based upon self-study, hence a sharp decline in new professionals.
You could also argue that there has been a real lack of contingency planning in the industry. A great deal of ‘old school’ firms were set up to feed business to simply one or maybe two advisers (Charlie Reading pictured).
“This structure is fine in itself, but once these advisers choose to retire, there’s no-one qualified or experienced enough to continue with the business. There is evidence of a rather dated model within the world of financial advice, where a business was not set up to grow and develop, but instead to simply line the pockets of the adviser at the top of the tree. For example, if the firm wasn’t set up as a progressive business venture, but instead simply a mechanism for individual operators to earn a living. This lack of effective succession planning may see many firms shutting up shop altogether.
“Insurance charges could also be a reason, over the last 12 months, professional indemnity premiums have increased significantly for most financial advisory/planning firm across the country. This has resulted in the alarming closure of smaller practices as they simply cannot afford this increase. Some IFAs are even being banned from undertaking certain types of business- namely advice centred on final salary schemes.
“Also, technology is also having an impact, albeit on a smaller scale at the moment. Some sceptical IFAs are regarding the launch of robo-advice as the end of their careers. We don’t feel that this kind of advice can ever effectively replace actually dealing with your financial planner face-to-face, but it may diminish the revenue of low-value investment business.”
What can be done to reform the industry?
Reading adds: “Many things can be done to reform the industry, including taking people up the ranks via effective training. Supporting young people and promoting from within also helps.
“Essentially, as the industry has become more professional, and the legislation becomes more complicated, the need for better-qualified, more experienced advisers has increased. A lot of smaller firms don’t want to train people up for risk of losing them.
“There is a good stream of young professionals who want to give advice, but many want to do so as quickly as possible rather than as professionally as possible. Historically, that was easier to make happen, today it is more difficult to find those opportunities.”
Sabuhi Gard is an investment writer at Incisive Works
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