AFTER SEVERAL DIFFICULT years for financial advisors, there has been some good news lately. Yes really. Not election results and policy pledges, advisor education standards, quality of advice review, or Australian Law Reform Commission (ALRC) review in financial services legislation , because the end result of all these things is still a long way off. Instead, there are several pieces of research that all say positive things about the future of the financial advisory profession for years to come.

MILLENNIALS

First, there are “five financial truths about millennials at 40” taken from Natixis Investment Managers’ 2021 survey of investors around the world. As the report states, while it may come as a surprise to some, millennials are no longer “twenty-something hipsters obsessed with avocado on toast and Instagrammable experiences.”

This research reveals that millennials want personal financial advice – in fact, those with a minimum investable asset of $100,000 are already significantly more likely to work with a finance professional (40%) than to rely on advice robots (7%), although many (19%) use a combination of the two.

Even better news is that nearly nine in ten (88%) of millennials surveyed said they trusted their advisor when it came to their finances – only 81% trusted their family, only 68% trusted to close friends and less than 25% trust social media.

According to Natixis, more millennials already work with an advisor than Gen-X or Baby Boomer generations. This is quite a turnaround for the so-called crushed lawyer generation. But then again, they reach middle age, have multiple sources of income, get married, start families, build careers, grow businesses and lead global corporations, so maybe it’s not that surprising. .

GENERATION Z

Perhaps more surprising is research from the Australian Investment Exchange Limited (AUSIEX) which found that young adults, those who belong to Generation Z (Gen Z), are also very interested in their future. financial sector, as evidenced by the growing number of people choosing to trade stocks and invest in exchange-traded funds (ETFs) AUSIEX Australia’s business transformation research focused on the trading behaviors of generations among the advised, advised (platforms) and self-directed investors, using commercial data.

Last year, AUSIEX discovered that many more investors entered the market during COVID-19. Demographically, while nearly one in four clients advised (24.7%) belong to the older Generation X, the number of millennials has doubled, from 3.8% to 8.4%, and the Gen Z’s number more than tripled to 1.7%.

Despite market volatility over the past two or 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 main benefits of having a financial planner, according to AUSIEX Head of Distribution and Advisory Services, Andrew Stewart, is that they are “focused on helping their clients to execute a strategy.

Financial planners help clients avoid silly decisions at the wrong time and stay on track to achieve longer-term goals. This research recognized that financial planners, in Stewart’s words, “have played an important role in the investment 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. Findings indicate that new female financial planning clients have outnumbered new male clients every month since 2019, putting them on track to surpass the number of men overall as a percentage of the advisor’s client base. at some point in 2022.

SMSF INVESTORS

This year, AUSIEX produced a study of its clients of self-managed pension funds (SMSF): SMSFs under advisement. Again, the research focused on advised, self-directed and advised (wrap) investors. He concluded that “SMSF clients advised have become younger, more feminine and more active, favoring a distinct mix of investment sectors and securities.”

While most SMSF clients advised are from older generations, research indicates that “growth comes from the next generation, with the self-directed segment signaling change.” About 5.5% of SMSFs are held by young self-directed investors, more than double the number held by young SMSFs advised, which can be explained, at least in part, by the cost of the advice.

Similar research from AUSIEX last year found that millennials are the fastest growing segment of new SMSF accounts (10% of all new accounts as of 2020, double the rate of years previous). The number of SMSF accounts held by Gen Z investors has also doubled in the past 12 months.

This suggests that a large number of people are becoming more interested in their investments and are willing to seek the help of a financial advisor. And there’s better news about advised communities, via a recent study by the University of NSW Business School, Unsung Guardians.

This study found that financial crime increased in areas where the number of advisers decreased. There was an 8.8% increase in average fraud rates in local government areas with above-average financial adviser departures in 2018 and 2019. While this is not good news, the the reverse was true in areas with proportionally more councillors. That is to say, according to the results of the study, “establishing a long-term relationship with a financial planner can help reduce fraud within the community”.

The authors concluded that “exposure to professional financial acumen enhances public awareness of deceptive financial schemes and reduces susceptibility to community fraud.” This is another previously misunderstood benefit of accessible, affordable and good quality professional personal advice for everyday Australians.

But the study goes on to suggest that enforced higher education standards served to “indirectly improve industry quality despite higher education mandates having no direct evidence of improved advisor performance.” This is an interesting take.

This could be interpreted as:

• The number of counselors has been reduced due to mandatory higher education requirements;

• In an environment of increasing demand for advice;

• From a wider segment of the population, and

• Those who remained standing made an extra training effort, but this did not improve the counsellors’ performance.

One might suggest that counselor performance has not improved because most counselors were already performing exceptionally well before onerous education requirements, with limited recognition of prior learning, were put in place. This leaves us wondering if the baby was thrown out with the bathwater in an effort to improve the financial advice landscape. That would be a resounding “yes” in our opinion.

AND AFTER ?

We need to rebuild our team of advisors and enable advisors to provide the kind of little advice that people, especially younger people, are likely to want. But as we all know, currently there are many things that are hindering this, and they are not limited to education standards. The code of ethics obliges advisers to consider all aspects of the client’s situation, which makes it very difficult to provide targeted advice. Other obligations make it difficult to simply provide simple advice.

The requirement for evidence and lengthy Statement of Opinion (SoA) documents, combined with zero tolerance on documentation in the client file, means that it is also costly to provide this type of advice. Consequently, many of these consumers and clients who want and need advice simply cannot get the advice they want at an affordable price.

Another positive is that the profession itself has shown a strong willingness to work together to change this, with a record number of 12 associations working together on a joint submission to the quality of advice review.

The quality of advice review offers an opportunity to tackle many of the barriers to providing affordable, quality advice, but only if our new government can show the leadership, vision and commitment needed to get there.

There is no doubt that the role of the financial advisor today is very different from that of 2004, when the first financial services reforms took effect. All the traits and obligations of a financial advisory professional are already in place, including the focus on the client, not the sales. , higher education standards, the financial advisor exam, continuing professional education, a code of ethics, internal and external dispute resolution processes, etc.

The new government should be convinced that the duty of best interest (BID) is the fundamental and paramount obligation of the adviser. BID requires advisors to provide advice that is in the best interests of their clients. The layering of additional, disclosure-based and often inconsistent regulations has done little to improve consumer protection and has instead made access to affordable quality personal advice much more difficult.

It should also be obvious to the government that counselors who remain in our community love the work they do for their clients and are absolutely committed to staying in the profession. These advisors enjoy helping people achieve better financial results. After all the slingshots and arrows of the past decade(s), the advisers left standing are clearly the ones who have done everything they can to stay there.

Despite years and years of experience and meeting all the educational requirements along the way, some of these people go to college for the first time in their lives so they can keep doing a job they believe in. . Some return to university, despite already holding closely related master’s and/or doctoral level degrees. And some people are well over 70.

That’s what I call commitment.

Neil Macdonald is CEO of The Advisers Association.