The number of financial planning businesses is expected to fall as smaller players decide to leave the industry rather than adopt the future of financial advice (FOFA) reforms, Centurion Market Makers managing director Chris Wrightson said.
"We'll see the number of businesses in financial planning reduce simply because the small operators will get out [of the market] but they'll sell to the multi-owner or merge with a multi-owner," Wrightson told InvestorDaily.
He explained that although there will likely be a decrease in the number of practices, there is unlikely to be a significant fall of the number of advisers in the market. Instead advisers will shuffle around under new ownership.
"We do think that because of the average age [of company owners] and the increasing difficulty, there is still going to be a progressive sale of assets over the next five years," Wrightson said.
Although demand for financial planning businesses is outstripping supply in the current market, a trend for smaller operators to opt-out of the industry was likely, he said.
"Overall, there is a shortage of supply in practices for sale at the moment. Its quieter right now than it was six months ago. That's not to say transactions aren't going on. There are transactions going on, but usually it is one party approaching another," Wrightson said.
Leading up to FOFA implementation, and then the deferral of reforms, Centurion noted an increase in activity, particularly for larger groups who are looking to align their business model with the impending FOFA reforms.
"[Also] in May and June, we had a spike increase in inquiry from prospective sellers and that's after FOFA had been legislated. It was probably driven by some people who think they might get out of the industry rather than adopt FOFA," he said.
