The Financial Planning Industry comprises business establishments engaged in financial planning and providing advice to clients including superannuation and retirement advice, investment advice and management, self-managed super fund advice, tax advice, etc. Major industry services include: financial investment advisory services, financial planning Investment advisory services, and financial asset investment consulting services.
While the Australian Financial Planning industry is a relatively small one, it has been amongst the fastest growing industries in the last couple of decades or so. The industry currently has more than A$1 trillion in funds under managements and generates annual revenue of more than A$4 billion. 3214 businesses are currently engaged in the Financial Planning industry in Australia and employ more than 16,250 individuals.
History of the Australian Financial Planning Industry
Until the late 1970s, the dominant majority of Australians in need financial advice depended on their bankers, accountants and insurance agents for such advice. Financial planning had not emerged as a distinct field until then. However, in the following couple of decades, not only did financial planning get established as a distinct discipline, but the demand for non-traditional financial advisors also grew significantly. Factors such as consumers’ growing mistrust of the traditional financial advisors like bankers, accountants, insurance agents, etc., whose vested interests in promoting certain products and services were quite apparent (and huge), development of new and improved investment products, and the increasing complexity of the country’s tax and social system fueled this demand.
Emergence of financial planning as a separate discipline and unprecedented growth in demand for non-traditional financial advisors led to the appearance of an entirely new class of financial planners. These professionals not only had superior knowledge and broader expertise as compared to their traditional counterparts, but were also free from the bias and partiality that had plagued traditional financial advisors.
Growth in the Australian Financial Planning Industry
Today, one in every five working Australians seeks the services of a financial planner and relies on them to make decisions that suit their financial and personal goals, and this number is expected to increase substantially as the population ages. That’s because by 2050, nearly 23% of the population will be aged 65 and over, compared with around 13.5% in 2010. There has also been a significant increase in the use of financial planners as primary financial advisers. Credible research shows that from 1997 to 2004, the use of financial planners as primary financial advisers increased by more than 19%.
The widely recognized importance of the Financial Planning industry and the rapid growth it has experienced in the last few decades has naturally resulted in it receiving increased attention from regulators. As a result, the industry has become one of the most regulated industries in the country.
In spite of being a relatively small and young industry, the Financial Planning industry is in a growth phase of its life cycle. Not only are the assets under advice growing, but the number of financial planners and advisers as well the number of dealer groups is also increasing. In 2007-2008, the number of financial planners was around 15,000, which grew to around 16,250 in 2011-2012.
The industry has great growth potential and is expected to experience substantial growth in the next few years. However, experts are finding it tough to predict exactly how much the industry will grow. That’s because in order to assess an industry's life cycle one needs to look at a ten-year period, and the current year sits in the middle of that period. With FOFA legislation that has recently been implemented, the Financial Planning industry is emerging from a significant shift in regulatory framework the full effect of which remains yet to been seen, and it is therefore very difficult to predict the industry’s performance over the next five years.
Major Areas Offering Growth Potential for Financial Planning Businesses
As Australians are presently being underinsured, the area of risk insurance offers great growth potentials for financial planning businesses. Financial planning businesses currently generate only around 11% of their total income from risk insurance and there is great potential for increasing this percentage. Given the size of savings that Australians have in superannuation and the increase they are undergoing, another area offering great growth potentials is industry superannuation funds.
Major Competitors of Financial Planners
Private banks are emerging as a very strong competitor to financial planners. Many private banks are using their existing clientele as the target market in order to broaden the range of their services. Most traditional stockbroking services aren’t really a great threat to financial planners. Credible research shows that less than 3% of Australians, who have sought financial advice in the past or may seek it in the future, are likely to seek it from a stockbroker. Nevertheless, a significant number of stockbroking firms are showing a keen interest in expanding their financial planning business with a view to supplementing their existing revenue with a much more reliable source of income.
Financial planners are also facing completion from Insurance brokers, though only in the area of risk insurance. However, insurance brokers should not be underestimated as competitors both in the areas of professional advice and product sales. Another emerging competitor with great growth potential is superannuation funds. Not only are superannuation funds beginning to provide advice to their members in an effort to ensure the retention of their funds, but they are also lobbying for relaxation of the legislation in order to be able to provide advice to members on the investment options.
Accountants are a source of strong competition for financial planners. However, they are most definitely not in a position to dominate the Financial Planning industry anytime soon. That’s because around 46% of Australians who had sought financial advice in the past had sought it from a financial planner while only around 17.5% had sought it from an accountant. Family and friends can also be a source of competition for financial planners as research shows that 14.5% of Australians who have not ever sought financial advice in the past and 9% of those who have, are likely to seek financial advice from family members or friends. However, credible research also indicates that the dominant majority of Australians who had sought financial advice from family or friends now obtain financial advice from financial planners. Other competitors of financial planners include online providers, media, etc.
As the Australian economy is fast shedding the final effects of the Global Financial Crisis and the levels of disposable income are returning to normal, the Australian Financial Planning industry is likely to regain and perhaps even surpass its pre-2008 growth rate and expand considerably in the coming years.