Are Australian Financial Advisers prone to switching licensees, often?

We are pleased to publish the first of many reports based on our analysis on the evolution of the Australian Financial Advisers market. In this post, we are focusing on a rather interesting topic of advisers switching licensees. Essentially, we wanted to build deeper insights into the concept of how “loyal” Advisers are to the licensees with a hypothesis that most Advisers would have switched at least once and they do switch often. It turns out, we were partially true.

Our analysis is based on the ASIC dataset1 spanning a 10-year period from 2005 to 2015 (“study period”) for meaningful interpretation. In order to answer our fundamental question, we first had to deduce the number of Active Advisers in a given year. The chart below (Fig 1) depicts the growth of Active Advisers in Australia. The industry has grown at a healthy rate of 13.4% over the study period. To benchmark the growth, we decided to compare it against the rate at which Australian jobs were created during the same period2. Our first observation (Fig 2) is that both have followed a similar pattern with a dip in 2010 (post GFC) and that the growth rate halved in the five-year period from 2010 to 2015 compared to the previous five years.

Fig 1

Fig 1

Fig 2

Fig 2

A key contributor to the growth in Active Advisers is the number of New Advisers joining the industry. The following chart (Fig 3) tracks this growth and highlights the steep decline in New Advisers post 2010. In addition, we observe that 2015 has seen the biggest increase in new recruits – a significant 60% increase from 1,805 new advisers in 2014 to 2,898 in 2015.

Fig 3

Fig 3

Switch Analysis

Our next step was to determine how many advisers had switched licensees during the study period. We define a switch as a change in the licensee name associated with an individual adviser. Whilst, we acknowledge that we are unable to differentiate between genuine switches and instances where the company had rebranded, we assume the rebranding would be a small percentage of the overall switches.

The following chart (Fig 4) outlines our analysis on the number of switches made every year. To put it in context we calibrated this to the number of Active Advisers in the market for that year. Two key observations emerge from this analysis:

  1. The number of switches increased by an order of magnitude since 2010
  2. The % of switches has steadied around the 10% mark since 2010, which implies – roughly 10% of the advisers switch licensees every year

The chart also highlights the impact of FOFA as seen by the slight dip in 2014 given the uncertainties surrounding the regulation implemented in July 2013.

Fig 4

Fig 4

Loyalty index

Once we established that roughly 10% of the market switches ever year, we were then curious to understand the distribution of Adviser tenure at the licensees. Our goal was to identify patterns, if any, in the switches and we were indeed able to arrive at a definitive learning as illustrated in Fig 5 below.

This chart highlights the number of years an Adviser stays with a licensee before switching, irrespective of industry experience. The columns represent the number of Advisers switching and the x-axis represents the “loyal years” in increments of half year.

There is an overwhelming evidence that Advisers are most likely to switch between 6 to 24 months of joining a new licensee. It makes intuitive sense in that there is a “honeymoon period” during the first 6 months and difference in management style, cultural fit, etc., would surface thereafter. Our analysis shows a long tail distribution (we have truncated this chart to 12 years for brevity) but the probability of an adviser switching drops meaningfully once they have worked at a licensee for more than 24 months.

Fig 5

Fig 5

Switch-o-mania

Our final piece of analysis was to unearth insights around the number of times advisers have switched to determine whether Australian Advisers were switch-o-maniacs (turns out they are not). This analysis revealed two counter-intuitive insights:

1. Only 9,100 Advisers have switched a licensee based on the entire data-set (this analysis is not restricted to the 2005 – 2015 period)
2. Whilst we expected Advisers to switch a couple of times, we were surprised to see more than 3 switches as shown in Fig 6. This chart shows us the Adviser count grouped by the number of times they have switched

Fig 6

Fig 6

Summary

The following are our key observations based on the analysis above:

1. There were about 25,282 Active Advisers as at Dec 2015 and the industry had grown at a healthy rate of 13.4% since 2005
2. Whilst 10% of the Advisers switch every year, only 9,100 Advisers have ever switched licensees
3. The probability of an adviser switching a licensee declines materially after the 24-month mark

In my next post, I will outline the analysis and trends by licensor as well as product types with associated insights such as:

1. Which licensor has the most loyal advisers?
2. Growth rate of different product categories during the study period
3. Differences in any between aligned dealer groups and independent dealer groups

We will be publishing our insights online and refresh them monthly when ASIC releases their data. You can access these monthly updates via our app, for free, by signing up here.

Get Your Free Data Access >

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Sources:
1. http://data.gov.au/dataset/asic-financial-adviser
2. http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6291.0.55.003Feb%202016?OpenDocument (Table 4)

Authors:
Sandeep Rao – Sandeep is the CEO of Einsights and has extensive experience in the Australian Financial Services industry.
Pranay Roy – Pranay is a Data Scientist at Einsights with a Masters in Knowledge Engineering.

Sandeep Rao is the CEO of Einsights. He’s an experienced strategist, analyst, engineer and speaker. He started Einsights to empower executives to make better decisions, faster, with tools that speak their language. Sandeep is based in Sydney.

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  1. Pingback: The Australian AFSL with the most loyal advisers | Einsights

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