Western Australia has emerged as a lucrative market for financial planning firms, encouraging dealer groups to target the region’s increasingly wealthy population. Between 2001 and 2006, Perth’s average income per person increased by 34 per cent, almost 10 percentage points above the national average increase, according to figures from the Australian Bureau of Statistics and KPMG.
Perth showed the highest rate of income growth per person among the capital cities, and of the towns accumulating wealth at the fastest rate, six of the top 10 were based in WA. Third on the wealth accumulation list after Queensland-based Mackay and Gladstone – other regions to have benefited from the mining boom – was the city of Kalgoorlie-Boulder, the hub of the WA Goldfields region.
Bernard Salt, partner at KPMG, says there is a shift in wealth occurring across the country. “What’s happening is a fusion of sea change and the resources boom,” he says. And local financial planning firms are reaping the benefits. Mining company executives and employees, professionals from the medical sector and contract engineers are among the wealth accumulators seeking advice on their growing fortunes. Furthermore, many are retiring with larger nest eggs than they anticipated, thanks to generous share options and shares they own in the companies they’ve been working for.
{sidebar id=6} “There’s no doubt that a great deal of personal and corporate wealth is being created in WA at the moment, both directly through the resources boom but also flowing through the economy in terms of all of the general support businesses and retail businesses,” says Denys Pearce, executive director of Perth-based wealth management advisory firm Plan B. “As WA households recognise they are creating significant wealth, they’re accessing financial advisory services in order to help them clarify what that means for them and what they should do in both the short term and long term.”
Recognising this trend, dealer groups have been expanding their reach in WA and positioning their networks to take advantage of the growing pool of assets. In March, ING bought a 37.5 per cent stake in Perth-based dealer group Sentry Financial Group. Sentry has $1.1 billion in funds under management, and 81 advisers throughout Australia. “The investment in Sentry Group is another key strategic move by ING Australia to expand our distribution footprint,” said Ross Bowden, ING Australia’s executive director for aligned distribution groups, at the time of the acquisition. But ING is not the only group to have set its sights on the “Golden State”.
Axa Asia Pacific brands – Axa Financial Planning and Charter Financial Planning – have credited rising revenue growth in recent times to a strong presence over in the West. Paul Williams, national manager of Charter Financial Planning, says the group is actively recruiting to help WA practices meet the increased demand for advice.
Through a new alliance with Curtin University of Technology, Axa hopes to place a number of graduates over the next few years. “A lot of young graduates are still not quite sure of the opportunities within our profession; they often look at the accounting or the legal profession initially, but we’re finding now that we’re a legitimate contender for the career they want,” he says. Charter has 23 practices operating out of WA, while Axa has 11, and some 88 advisers work across the 34 businesses. “As their wealth grows, people are looking for more effective ways in which to both protect it and grow it further,” says Williams. “We’re definitely seeing an increase in demand, evidenced by a couple of things: we’re running about 4 per cent above average adviser productivity in WA, and that’s fuelled predominantly by a similar [numbers] of existing clients but a greater [growth in] new clients.
Our adviser numbers have grown well as well; we’ve had 7 per cent growth in adviser numbers over the past 12 months, which is above the industry average.” But the booming WA economy is a doubleedged sword for residents, and planners. Pearce says higher interest rates and an expensive office rental market are creating cost pressure for WA planners. “In respect of our own business, it’s great to be operating in such a strong economic environment, and that there is so much wealth being created, and that we can provide value add services to those in the resources industry, but the other side of the sword is that our own cost base is going up as well,” he says. Stephen Horsten, financial planner and director of Grove Wealth in Cottesloe, WA, says statewide inflation is running at 6 per cent.
“The type of advice that’s being requested has been around how clients can manage their income in a more effective way when considering a higher income but additional expenses too,” he says. “I work with an accounting group (Grove Accounting) as well and the demand for advice from both an accounting and financial planning perspective, in terms of the small businesses that come through, is around how they grow their business and how that affects their personal wealth. They want to know how they can manage their personal wealth with cashflow debt, and how to re-invest that into the business to keep it growing.” Horsten says doctors, small businesses in the resources industry, and engineers that work in the underwater mining sector make up the majority of new clients seeking advice since the firm was established 20 months ago.
According to Gary Ammon, principal at RetireInvest Applecross, the market segment that remains largely untapped is the young “tradies”, who are working as contractors on the mine sites. Ammon says the boom has elevated the upper end of town, with many high net worth clients seeking advice from private banks, rather than planners. “Then there’s the tradies; they’re the ones that have really made the money,” he says. “Unfortunately they’re not the savers. We have a great influx in Perth of V8 Utes and 100-inch plasmas; every second bloke’s got one, so they don’t see the long-term picture.”
However, Horsten believes there’s been an evolution over the last four years, with attitudes shifting from a “spend” mentality to a “protect” mentality. “Initially there was money coming in [and the attitude was] let’s pay off some debt, go out for dinner more and have a few more drinks,” he says. “That mindset’s changed – people are now saying, ‘I’ve had a good time, I have to knuckle down and do something about this money because it may not last that long’. There is the business end of town which may have different visions in their life, but as for those who go to work on the mines and come back, that’s been the evolution.” Williams says strong growth in Axa’s financial protection sales in WA supports the view that young contractors increasingly want to protect their growing assets and income.
“The younger tradies are protecting their income more than they have, and we know that because our commercial protection sales have grown strongly within that segment in WA,” he explains. “That’s a good sign that they’re thinking about that at an early stage. I agree we’re not seeing the high investable funds in that segment, but at least they’re taking steps to protect their income.” Indeed, even the wealth being generated by the upper end of town is not all readily available to be invested in the general market. Pearce says in many cases, individuals’ wealth is tied up in their employer’s superannuation scheme. So whilst Plan B would provide general financial advice to help people clarify their financial objectives and determine a strategy to set them on that path, they would regularly recommend those clients keep their money in that fund, rather than move it. As a fee-for-service practice, this does not hinder the revenue stream available to the business. “We’re earning revenue in respect of the advice, but we are not necessarily earning revenue in respect of the investment management,” Pearce says.
Long-term incentive plans have become a common retention tool in the resources industry, as employers seek to retain staff in a tight and competitive market. Pearce says Plan B has a relationship with a number of the major resources companies, which subsidise the cost of financial advice for their staff as part of the employee benefits package. “It may well be that a senior executive is being incentivised and remunerated by way of options,” Pearce says.
“Clearly those options can’t be dealt with until some trigger occurs in the future, like retirement or resignation, but at that point they probably find themselves in a highly concentrated position – that is, they have a high concentration of net wealth to one company – so we put in place a plan which, at the appropriate time, would be triggered and would result in a rebalancing of their portfolio in order to achieve broader diversification.”
