FASEA Pass Rates - Known and Forecast Results By Peer Groups
We all have an opinion as to how many Advisers will be practicing post the FASEA Exam requirement of Jan 1, 2022. This post aims to separate opinion from known facts and put some science into the forecasts.
What do we know today?
Adviser roles have been falling away rapidly since 2019, from a high of 28,266 in 2018 to 20,306 as of May 27, 2021. The number of actual Advisers dropped below 20,000 last week, now sitting at 19,953. (Note: Variation between Adviser roles and actual Advisers is mostly due to a small number of Advisers working across 2 or more licensees).
We also know that FASEA have published data indicating that ‘over’ 13,500 Advisers have passed the exam to date (post the March 2021 sittings). Knowing just exactly which Advisers passed the exam is not so easy. A list is provided by FASEA of Advisers who have passed the exam. However, it only includes those Advisers who have given permission to be on the list and secondly, it is damn hard to work through due to the limited format of the list.
We have worked through the FASEA Passes (literally hours of work!) and gained a total of 9,995 passes. We have been able to match the passes against Advisers and licensees on our ASIC FAR listing, (Our listing excludes Timeshare and most Foreign Exchange Advisers).
To form the table below, we have ‘Grossed Up’ pass rates by 1.35 to make up for the Advisers who have passed but not disclosed their pass on the FASEA Listing. To extend the forecast to year end - we have reviewed the current number of Advisers expected to sit the May sitting - at 1,850 and estimated the number of Advisers who will re-sit the exams by year end. We also expect a small number of Advisers to sit the exam for the first time. This could see the remaining number of passes to be 2,554.
Our estimate of remaining passes is a bit optimistic, but we feel there is now a concerted effort by all stakeholders including licensees, to help the remaining Advisers to pass the Exam. Using this 2,554 as a ‘pool’ of remaining Advisers, we have shared this equally by the current pass rates at peer group and licensees levels to get to our final figures.
One last thing that we now know today which has not been talked about in the media - there is high number of Advisers who have passed but are not current Advisers. Of the 9,995 passes we have cross matched, 699 are ‘ceased’ on our ASIC FAR. When grossed up to account for those Advisers who opted not to disclose their pass, the number grows to 946 (not shown in the table).
Short explanation of the peer groups:
Financial Planning - Licensees with a clear holistic approach to financial planning
Investment Advice - Licensees with a focus on portfolio advice, often using direct investments. For example, Bell Potter, Shaw and Partners are in this peer group
Accounting - Limited advice - This peer group are of licensees that have the majority of its Advisers restricted to SMSF / Super
Accounting - FP - A smaller peer group whereby most Advisers appear to be able to provide holistic advice linked to accounting firms
Super Fund Based Advice - Licensees attached to superannuation funds, mostly industry funds
Other and Other Limited - Mostly small licensees who are either limited in nature or don’t fit another peer group. None would be seen as providing holistic advice.
Note - We are using Adviser roles at the peer group level - As stated earlier, the number is slightly higher than actual Advisers. To put this this into perspective, we have 9,293 actual Adviser passes (showing as 9,493 roles in the chart) and the final number of actual Advisers is forecasted to be 14,955.
What do the numbers tell us?
At a high level, there will be a major reduction of Adviser roles by 25% against the current number of 20,306. Compared to the high of 28,216 in 2018, the numbers will have dropped by 46%.
If there is a silver lining in the forecasts, the number of Advisers who provide holistic advice, predominately the financial Planning peer group, will hold up relatively well. It is this sector that provides the bulk of advice across retail clients in Australia.
Accounting - Limited Advice. This peer group will take be hardest hit in percentage terms. This peer group is relatively new and took advantage of rule changes in 2016 allowing accountants to provide limited advice to their SMSF clients. The vast majority of Advisers in this peer group would not view their role as financial adviser, rather they would spend the majority of their time working as an accountant. Therefore, few if any will lose their actual job in the accounting firm.
One would expect that post FASEA Exam deadline of Jan 1, 2022, many accounting firms will need to access qualified Advisers to service their clients. A massive opportunity for Advisers who will be around long term. We will also see a large number of small licensees close and a couple of big ones will struggle. For example, the four largest licensees represent 1,111 Adviser roles in this peer group and our forecast is that just under 20% will pass the FASEA Exam.
For licensees with less than 20 Advisers, there are 697 Adviser roles and our forecasts is that less than 17% will gain a FASEA Pass. This sector has 424 licensees and to date, only 41 have at least one Adviser that we have identified as passing the Exam.
Investment Advice Many in this peer group would not be used to providing comprehensive advice and they may be struggling coming to terms with the FASEA Exam. The range of pass rates in this peer group is large. For example, analysing licensees of 50 or more current Advisers, the forecasted pass rate at year end varies between 47% and 100%.
There have been suggestions that many of the Advisers will simply give up on the FASEA Exam, drop off the ASIC FAR but continue advising sophisticated / wholesale clients. While this is feasible and we have seen this occur at some licensees over the last year, there is of course a limited number of sophisticated and wholesale clients. Secondly, what will be done with the retail clients who must be serviced by an Adviser who passes the FASEA Exam. Managing these issues will be quite difficult for some licensees.
Financial Planning By far the largest peer group that also has a fair bit of variance with results. For example, for licensees with 100 or more Adviser roles, representing 6,407 in total, the rate of forecasted year end passes varies between 61% and 100%. For all other licensees in this peer group representing 6,071 Adviser roles, the pass rate is 81% and varies between 0% and 100%. This group (less than 100 Adviser roles) has a total of 1,114 licensees and 289 are not showing any known passes.?
A question since first publishing this post - Are specialist Risk Advisers less likely to pass the FASEA Exam than Advisers who provide broader holistic advice? Due to the data from ASIC, it is not so easy to fully define a Risk Adviser from an Adviser who provides broader advice. We have estimated based on known licensees and associations that appeal more to Risk Advisers of a final pass rate of 85%. The broader holistic Adviser which will be closer to 95%.
In summary
There is little doubt that the drop in Adviser numbers YTD and since 2018 has been significant and we can only expect things to get worse as the year progresses. We also expect significant number of small licensees to cancel their licence and for many accountants, they will return to outsourcing financial advice as they did pre 2016.
Some larger licensees will find their business model under pressure with a reduced number of Advisers paying their fees. For example, even at a low rate of $3,000 per Adviser per year licensee fee (Limited Advice) the loss of 5,000 Advisers will see the loss of $15 million dollars - That equates to a lot of job losses. This could lead to mergers and takeovers.
With a reduction in Advisers, the ability for the public to seek advice will diminish as the cost of good advice will likely be even more unaffordable to the people who probably need it the most.
One point to ponder - Not so many years ago, just before the ASIC FAR became available and limited licences got the green light, we were always of the opinion that there was approx. 15,000 advisers working with clients.
This could be the start of a boom time. For Advisers who will be here for the long term, opportunities to gain referrals and clients from accountants will improve. There will also be opportunities to buy / take over Adviser client books as they come up for sale. Much of this is already happening as Advisers/accountants exit the market place with over 650 calling it quits year to date.
To put this into perspective, when dividing the total number of SMSFs by the current number of Advisers, the current ratio of 28.8 per Adviser, if we get down to 15,000 Advisers, it will be 38.3 per advisers. Assets held in SMSFs will move from 37.1 Mil per Adviser to 49.3 Mil per Adviser.
We believe in the forecasts and ran the model before the March sittings being released and got very similar results. As mentioned, we may be a bit optimistic with regards to the expected ‘pool’ of remaining passes, this optimism would be short lived if many Advisers decide not to re-sit. There could also be a last minute rush to pass the exam, which could give the total numbers a boost - many of us tend to leave things last minute and some Advisers might just be holding back for now.
What about the Advisers who have passed but are ceased on the ASIC FAR?
Of the 699 identified as having passed the FASEA Exam, but currently ceased, 621 left after Jan 1, 2019. There were a total of 784 resignations for this group of 621, highlighting that some lost their role more than once. Not all appear to be without a ‘job’. A small number work in advice support roles and have been released from the FAR. We have seen this occur a number of times as licensees cut back on the number of non-client facing Advisers listed on the FAR.
The median years experience for the group is 11 years and 495 had left the Financial Planning peer group. One would expect that many will be keen to get back into advice. This could cushion the overall forecasted loss of Advisers.
Need More Information?
We can create packages designed for leaders across wealth and financial planning. The package will include a PowerPoint presentation and go into greater detail than the initial Peer Group chart. We can show:
Your advice businesses versus peer group and selected licensees
FASEA pass rates by comparable Advisers, e.g. by years of service, gender, membership of associations, degree qualifications and by states.
Identify opportunities such as licensees attached to accountants that are likely to fold and will need the support of Advisers
Highlight what effect the numbers may have for servicing existing clients, growth in clients due to less Advisers and the the growth in demand for advice as more people seek advice
Service providers may want to focus on licensees that look set to boom post 2021
Analysts may wish to track listed advice firms and associated wealth companies, and compare progress with FASEA
A Tableau file can be provided.
The package will include an excel spreadsheet highlighting every licensee in a sortable format. We can attach the details to our popular AFSL Listing to include contact details of each licensee.
We can also Zoom or arrange in person meetings (Sydney) with leadership teams. Presentations can be modified upon request.
To find out more - please contact Colin Williams 0432 485 569 0r Click For More Contact Options
