Unsung guardians: Financial advisers shield communities from fraud

When 4500 financial advisers left Australia’s industry, fraud surged in their wake – revealing an invisible community shield no one knew existed

Financial fraud has evolved into a sophisticated global enterprise, powered by digital technology and psychological manipulation. Scammers now deploy artificial intelligence to craft convincing phishing emails, use deepfake technology to impersonate trusted figures, and exploit social media to harvest personal data. The pandemic accelerated this transformation, as millions moved their financial lives online, creating new vulnerabilities for cybercriminals to exploit

Organised financial crime (such as tax and revenue crime, superannuation fraud and payment fraud) costs Australians up to $18.8 billion every year, while the Australia Bureau of Statistics has found that some 2.1 million Australians experience card fraud, 675,300 experienced a scam and a further 255,100 experienced identity theft. These statistics represent more than financial losses; they reflect shattered retirement dreams, destroyed small businesses, and communities where trust itself becomes a casualty.

Against this rising tide of fraud, new research from Australia reveals an unexpected line of defence: the presence of financial advisers protects entire neighbourhoods from fraud, not just their paying clients. This discovery emerged from an unprecedented upheaval in Australia's wealth management sector. Following the 2018 Banking Royal Commission’s exposure of industry misconduct, new regulations drove approximately 4500 advisers – nearly 16% of the workforce – from the profession in a single year. This mass departure created what researchers describe as a natural experiment, exposing the hidden ways financial professionals safeguard their communities.

Measuring the true cost of adviser departures

Dr Natalie Oh, Senior Lecturer in the School of Banking and Finance at UNSW Business School, together with her co-author UNSW Business School colleagues Professor of Finance Jerry Parwada and Eugene Wang (UNSW Alumni and University Medallist, BCom (Co-op) Hons 2021) analysed this mass attrition in their paper Unsung guardians? Communal fraud susceptibility and complaints following mass financial adviser attrition, published in The British Accounting Review. The team examined 300 local government areas across New South Wales, Victoria, Queensland, South Australia and Western Australia.

Their study compared fraud rates between areas with high versus low adviser attrition while controlling for demographic factors including population, median age and income levels. The researchers gathered comprehensive fraud data from state police databases, the Australian Financial Complaints Authority, and IDCARE, ensuring coverage of crimes ranging from identity theft to investment scams. This rigorous approach isolated the specific impact of adviser departures from other potential causes of fraud increases.

The findings were unequivocal: “The removal of professional financial advice increases fraud in affected localities,” the researchers stated.

Knowledge spreads beyond the client meeting room

Financial advisers traditionally serve individuals seeking investment guidance and retirement planning. However, their influence extends far beyond formal client relationships. When advisers share expertise with clients, that knowledge often transfers to family members, friends and work colleagues who never directly engaged professional services.

The research found that “the scope of individuals benefiting from advisers is often understated,” as clients internalise financial principles and share them within their social networks. This creates layers of protection as sound financial judgement spreads organically through communities, helping residents identify fraudulent schemes and questionable investments.

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The 2018-2019 exodus provided researchers with an opportunity to measure these effects. Communities losing advisers above the median attrition rate of 9.6% experienced fraud increases of approximately 8.8% compared to less affected areas.

Professional ethics trump academic credentials

While the Financial Adviser Standards and Ethics Authority (FASEA) mandated bachelor’s degrees for all advisers, the research revealed surprising insights about which professional characteristics actually reduce fraud. Education levels showed no significant impact on community fraud rates. Instead, membership in professional associations emerged as the critical factor.

“Areas having proportionately more advisers with membership in professional associations register fewer cases of fraud,” the study found. Communities retaining advisers affiliated with organisations like the Financial Planning Association or Chartered Accountants Australia & New Zealand experienced 11% less fraud than areas where professional membership declined.

This finding validates FASEA’s emphasis on ethics training – professional associations typically require ongoing ethical education – while questioning whether blanket degree requirements effectively improve community outcomes. The research suggests that ethical grounding and professional accountability matter more than academic qualifications in protecting communities from financial predators.

Rebuilding community defences

The implications extend beyond Australia’s borders. As financial products grow increasingly complex and fraud schemes become more sophisticated globally, communities need robust defences against exploitation. The research demonstrates that financial advisers provide this protection through knowledge diffusion rather than direct intervention.

Several strategies could help maintain community protection as the advice industry evolves. Professional associations might expand community engagement programs in underserved areas. Regulators should consider these broader social benefits when evaluating industry reforms. Digital advisory services, while useful, cannot fully replace the organic knowledge transfer that occurs through local professional presence.

Learn more: Cracking the code: why people fall for scams

The authors concluded that despite triggering the mass exodus of advisers, FASEA requirements mandating increased educational standards and ethics training are relevant for industry improvement. However, policymakers must balance professionalisation goals with maintaining adequate adviser coverage across communities.

Prof. Parwada noted that the study was conducted under a unique collaboration with Adviser Ratings, a leading data and information provider in the Australian financial advice industry. “The industry partner provided data and practitioner input from the beginning to the end of the project. The successful completion and publication of the research illustrates the value of academics collaborating with industry,” he added.