Entrust takes long view on growth

05/08/2020 - 15:35

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Australia’s financial planning sector is grappling with major regulatory changes.

Entrust takes long view on growth
Chris Webster says the regulatory changes have had little effect on Entrust. Photo: Gabriel Oliveira

Adviser Ratings chief executive Mark Hoven makes his living from tracking the financial planning industry, and what he sees currently is a shrinking sector.  

The number of financial advisers across Australia has fallen from 25,000 four years ago to 21,500, and Mr Hoven anticipates that number will shrink to about 15,000.

The decline has been driven by multiple regulatory changes, such as the end to ‘grandfathering’ by 2021 and the phased reduction in commissions.

(click here to view a PDF version of this special report)

Advisers are also required to maintain higher professional standards, including having to pass the Financial Adviser Standards and Ethics Authority (FASEA) exam by the end of 2021.

Mr Hoven said only about 6,000 advisers had taken the exam.

“If you don’t pass it by the deadline, you can’t practise, it’s that simple,” he said.

An even bigger hurdle was the requirement for all advisers to hold a relevant bachelor’s degree (or equivalent) by 2026.

As well as shrinking overall, the structure of the industry is changing.

Advisory groups owned by or aligned with the big banks and insurance groups have fallen to about 37 per cent of the national market.

The big growth area has been privately owned licensees with 30-plus advisers, with this segment having grown to 31 per cent of the total market.

“We anticipate a growth over time in the volume of advisers gravitating to the largest privately owned licensees,” Mr Hoven said.

Adviser Ratings data shows the biggest players in Western Australia, based on number of authorised representatives, include national groups SMSF Advisers Networks, Synchronised Businesses Services, and AMP Financial Planning.

Major Perth-based players include Sentry Group and Neo Financial Solutions, the latter recently acquired by fintech company Picture Wealth Holdings.

One person watching these changes with keen interest is Entrust Wealth Management managing director Paul Webster.

“What you are seeing out there in the market is the big bank licensing groups breaking up,” Mr Webster said.

“It’s caused a lot of upheaval.” 

Mr Webster believes Entrust is well placed to navigate the disruption.

“We’ve been a beneficiary of this climate because very little has had to change for us,” he said.

“A key point of difference is that we’ve been self-licensed for that whole journey.

“Entrust is not part of a dealer group.”

Established in 2002, Entrust was bought by stockbroking and financial services company Euroz in 2005.

Since then, Entrust’s funds under management have grown to nearly $1 billion, making it one of the larger funds management groups in WA (see list next page).

Euroz also owns Westoz Funds Management, which specialises in managing two listed investment companies.

Mr Webster said financial advisers looking for a new home did not always appreciate what was involved.

“Being self-licensed is a lot of work,” he said.

“We’ve built up systems and processes and operational infrastructure to support that over time.

“I’m not optimistic that other groups can spin-out of a bank where they’ve had institutional support for a long time and get those things up and running and still look after their clients.”

Mr Webster expects the new professional standards will lead to a big culling of advisers.

“There is no doubt a lot of the older financial advisers will retire around 2026,” he said.

“They will probably sit the exam but they won’t do the full degree.”

Mr Webster said Entrust advisers who had sat the exam had been given a new lease of life.

Amidst the market upheaval, Entrust was seeking acquisition opportunities, targeting advisers who were keen to grow their business.

Another issue for the industry raised by Mr Hoven was the proposed FASEA code of conduct, which was meant to remove all actual and potential conflicts of interest.

“Nobody knows when or how this will occur,” Mr Hoven said.

“That kind of uncertainty just doesn’t help.”

He said the higher standards and higher costs had led to an ‘orphaning’ of clients.

“Its not what we want to see,” Mr Hoven said.

“We want to see more people receiving advice.”

He added that digital advice, or ‘robo’ advice, was one option to help people who could not afford full-service financial advice.

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