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Why Netwealth is looking forward to predicted financial advisor exodus

Fresh after joining the fabled S&P/ASX 200 (INDEXASX: XJO), management from Netwealth Group Ltd (ASX: NWL) isn’t worried about a prediction of an impending exodus of financial advisors from the industry.

According to a report in the Australian Financial Review (AFR), research firm CoreData anticipates that as many as 42% of registered financial advisers will leave the sector by January 2026, when the federal government’s mandatory education standards for the industry take effect.

The government has legislated a requirement that by this time, existing financial advisors who haven’t obtained an ‘approved degree’ will be forced to obtain one as well as passing an ethics test as well as a competency exam if they wish to continue practising. Clearly, CoreData is assuming that many existing advisors won’t be taking this opportunity up.

Netwealth markets itself as “challenging the conventions of Australia’s financial services”, which has clearly been going down a treat with its customers. At $9.04, Netwealth shares are today (at the time of writing) almost double the $5.40 the company IPO’d at back in November 2017. The 2018 Royal Commission that exposed the superannuation and wealth management arms of the Big Four banks for serially ripping off customers and providing questionable services for high fees has probably assisted in the appeal of ‘new’ wealth managers like Netwealth.

Like any financial advisor or planner, Netwealth has been struggling in this new paradigm of low interest rates, which reduce the returns from non-equity assets like cash and bonds that investors traditionally use to diversify a ‘balanced’ portfolio. However, the company sees opportunities arising from the exodus of advisors and is positioning itself to benefit from the ‘orphaned’ clients this will throw out. The AFR report quotes Netwealth director Michael Heine, who stated:

There are a number of groups that are out there acquiring and are going to get bigger and bigger… so the money and clients those exiting advisers look after is likely to be re-allocated to newer advisers or remaining firms. We think that’s an opportunity. The whole industry will be turning over and re-setting over the next three years, then we will have seen who the winners and losers are.

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Netwealth. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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