Do we have the right number of advisers?
It’s been quite a week with minister Stephen Jones announcing what will be his ‘roadmap’ for financial advice reform and the next day, putting to parliament the Experienced Pathway. Combined, the proposed legislation should allow advice to be provided more efficiently and help protect the number of advisers currently hovering at around 15,800.
When reading the information from Stephen Jones at his address to ASFA, he stated that some ‘five million’ Australians are at or approaching retirement and they need to get better income advice. That got me thinking as to just how many advisers would be required help all Australians.
If you don’t like numbers, I suggest you stop reading now. Otherwise, continue on.
Firstly, I opted to search the ABS and got the following data. There are just over 12 mil ‘persons’ between the age of 25 to 59. As for those at or approaching retirement, there are 5.24 mil between 60 and 84 and 0.53 mil over 85. In total some 5.77 million. The grand total is close to 18 million persons that are older than 24.
The next step is to consider how many adviser appointments may be needed. Those ‘persons’ in a relationship will most likely see an adviser as a couple. For ages between 25 and 85, ABS indicates that some 67% of persons are in a relationship (married or de facto) and 37% over age 85. When doing the math on that, we get to a grand total of 3.9 ‘individual entities’ that over 60 (including over 85) and combined for all entities 25 or older, it is close to 12 million* which we will refer to as individual entities. This is much less than the 18 million persons that we started with.
*To put this in perspective, for 1,000 persons and 67% are in a relationship, this equals 670 persons and resulting in 335 joint appointments. We then add back in the single people (33%) at 330, giving a total of 665 appointments per 1,000 persons.
With this information, we commenced building the charts as shown below.
What do the charts tell us? (Charts available to all members - Chart 7 Adviser Fast Facts)
Chart 1 - has all the filters set in a neutral format and only applies to persons 25 or older. To explain the filters, we have assumed that all individual entities will see an adviser once per year and for simplicity, be charged a flat rate of $1,000 for that advice. We have rounded the number of advisers to be 15,800 and 46 working weeks in a year. In total 11,937,642 entities serviced by 15,800 advisers.
Chart 1 indicates that this would equate to 755.5 entities per adviser and 16.42 appointments per week generating $16,425 of revenue per week. Is that doable?
Initially, the number of entities per adviser appears high based on recent information. For example, Business Health in their Jan 2022 Future Ready IV whitepaper, showed that advisers had 228 clients each and this number will dip slightly when the paper is updated to 2023. However, back in 2017 it was closer to 286. As of 2021, Business Health indicates that the high performing practices’ advisers have 261 clients each and do 7.4 appointments per week. Revenue per client comes in at $6,384.
Chart 1 - Key assumptions - all individual entities will be seen by an adviser once per year. Used a 46 week year and 15,800 advisers.
Chart 2 - We have modified the tables. Now we have only 75% of those entities over 60 taking advice, only 50% of those between 25 and 59. The number of appointments per entity is at 1.25 per year. This allows 1 appointment per year and 2 every 4th year.
This still has a high number of entities at 439.8 per adviser and close to 12 appointments per week - total revenue at just under $12,000 per week.
With a lot of red tape being taken away along with greater automation, this might be doable?
Chart 2 - A reduction to 50% of those between 25 and 59 seeking advice and 75% 60 plus. Number of appointments per entity increased to 1.25 per year.
The revenue is at $11,952 which equates to $549,792 per adviser. In our presentation to the Platforms, Wraps and Adviser Tech conference a few weeks ago, we highlighted that the median revenue for advisers linked to licensees listed on the ASX, came in at a projected $400,000. This covers close to 3,900 advisers.
Another consideration, at the same conference, Investment Trends highlighted that the consumer has increased what they are willing to pay for advice by 28% to $770. If we did the above calculation at $700 (discounting for GST), the yearly revenue per adviser would come in at $384,836.
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