Melbourne-based dealer group Australian Financial Services (AFS) has gone on the offensive, offering hefty financial incentives to licensees of rival group Total Financial Solutions Australia (TFSA) in a bid to stifle its competitor.
A principal representative agreement obtained by Professional Planner promises an upfront payment of $30,000 plus a fee free period equivalent to one month’s fees to TFSA practices that transfer across to AFS before March 31, 2008.
The agreement also includes a 35 basis point “marketing allowance”, paid to advisers on the anniversary of the adviser joining AFS if they move clients’ funds from Dominion (TFSA’s in-house preferred product) to Strategy (AFS’s in-house preferred product).
The offer is clear in that it encourages departing advisers from TFSA to join AFS and switch to the AFS product range.
Cash and other incentive programs are sometimes offered by institutionally-owned dealer groups to entice practices, but it’s rare for an independent planning business to go after another independent planning business in such an aggressive manner.
Peter Daly, managing director of AFS, insists the proposal is not standard practice for the dealer group. He says it is the first time AFS – which has recruited about 90 practices over the last four years – has made an offer of this nature to practices of a rival dealership.
“The situation is we are attacking another dealer group, and as part of a one-off marketing program to break into that dealer group and break their hold, we have offered what we call a disturbance fee of $30,000,” Daly says.
Even so, is it really in the clients’ interest for planners to switch clients’ funds from one dealer group’s preferred product to another’s?
Daly says business would only be moved if it was in the best interest of clients. Both dealer groups use Oasis as their platform provider, so the trustee, platform and underlying products would remain the same upon transfer of the clients’ funds, he adds.
“This exercise is about transferring [TFSA licensees] across to us, and then where it is in the best interest of the client, the client moves with them from Dominion to Strategy,” he says.
“At AFS we have an open architecture… there is no enforcement from AFS that they have to move their business but what we were doing here was trying to match the benefits that were provided by the other dealer group.”
Included in the principal representative agreement is a clawback provision, whereby the $30,000 is repayable within fourteen days should a practice leave AFS within three years of joining.
It also notes that the 35 basis point payment is subject to “substantiation”.
“Thereafter the practice will be subject to the Strategy Portfolio standard marketing allowance of 15bp, discretionary menu and 20bp for model portfolios,” it says.
There is no doubt that competition between dealer groups is rife, and in this tight economic environment everyone is looking to maximise profits.
But a quick search of AFS’ website archive reveals an article published by InvestorDaily in 2006, in which Daly is quoted discussing the “unsustainable offers” some dealer groups had been making.
“Basically what they’re doing is ignoring existing standards and fee structures and offering deals that completely cut across what the majority of members are expected to pay for the same services,” he says.”In the long term, it undermines the credibility of the dealer group itself. Besides, a practice that accepts such deals from one group is likely to move again for another deal.”
No one is criticising dealer groups for wanting to make a buck, and extraordinary times call for extraordinary measures, but it is critical that these measures do not come at the expense of the client, who is the ultimate benefactor of the advice industry.
Is it really possible to have the best of both worlds?