Applied Financial Planning
Is your client really a sophisticated investor?
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The Financial services industry continues to undergo significant change. With the Australian economy now in a recession, many clients are looking for advice and reassurance. However, as the number of financial advisers continues to dwindle and a substantial number predicted to leave the industry in the coming years, many people are left without the support and advice they need.

In addition to this challenge, we also are starting to see a growing number of financial advice clients being reclassified from the retail to sophisticated investor category, even though they may not have the financial literacy or capability required for that classification. This, in turn, can lead to repercussions for both advisers and the accountants.

Given these challenges, we are expecting to see an increase in the number requests for changes to wholesale or sophisticated investor classification to come across advisers' desks.

This paper discusses the above issue and the current financial advice industry landscape to help advisers facing such requests.

What has changed in the financial advice landscape?

There is no doubt that the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry uncovered many issues within Australia's financial services industry—especially around the provision of financial advice—and provided many recommendations to improve and strengthen the sector, including an increase to the educational standards for advisers.

However, one of the side effects of the changes to the industry is that we are now seeing a significant number of financial advisers— especially older and experienced ones—leave during a period where demand for financial advice is high.

There are multiple reasons why advisers are leaving the industry, such as major banks closing or downsizing their advice divisions, the introduction of the Financial Adviser Standards and Ethics Authority standards, retirement and career changes. Further, the crux of the matter is that many clients are now left without their long-term known and trusted adviser.

The impact of fewer advisers in the industry

This reduction in adviser numbers is expected to be significant. Moreover, as many large financial institutions such as the major banks and insurers continue to re-evaluate the merits of being in the advice business— which for a majority is a non-core area—as well as weigh up the pros and cons of providing a service that has received significant amounts of negative publicity over the past several years, we can expect this decline in adviser numbers to accelerate further as these major institutions downsize or sell off their advice businesses.

Thus, advisers and accountants must understand how this decline in the number of financial advisers in Australia may impact clients who are receiving or looking to obtain financial advice.

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