Meller says financial planning is profitable as a business in its own right for AMP. He says that if not even one dollar of money from AMP clients found its way into AMP products, the planning operations would remain profitable.
“It is. It’s not huge, but it is profitable,” he says.
“I am saying AMP Financial Planning operates profitably; that doesn’t mean AMP doesn’t make profits out of its products,” Meller says.
“Within AMP’s model – and this is similar to many players in the industry – the financial planners are self-employed and running their own businesses. AMP Financial Planning, which holds the financial services licence under which those financial planners operate, is profitable in its own right. AMP Financial Planning charges financial planning businesses for the licensee services that they provide – like the provision of financial planning software, like professional development and capability, like all of the training and development and administrative needs of a financial planner’s business. The fees that they receive from the financial planning businesses cover the costs of that business.”
And then each individual practice is profitable or not depending on the fees it collects from clients.
“And I would say one of the benefits of being part of the AMP licences or the AXA licences is that as a rule, they are far more successful small businesses,” Meller says.
“That shows up in any benchmarking we do across the industry, and also outside of the industry as well, as well as thinking of the SME sector as a whole. A certain percentage of small self-employed businesses go bust very year. In AMP in the time I’ve been here I can only think of one of our financial planning businesses that went under, and that went under because he had some property investments on the side that didn’t fare very well.
“So we think one of the benefits of being part of a large licensee is that someone is able to set up and run their own business but do so in an environment where there’s a much lower risk of failure and a much higher chance of success.”
Meller says there is currently “a supply-side issue – there aren’t enough financial planners around”.
“So the efforts we’ve been putting into growing our business…is part of our effort to make advice more available to people,” he says.
“But also the productivity of a financial planner, and by that I mean the number of clients they have the capacity to see in any given week, has been going down and down and down as the increase in the legislative requirements around providing financial advice have got more complex.
“I’m not saying that’s wrong, because you want quality standards, but I do not think the industry has been very good at what I call ‘industrialising’ the process of achieving those standards. It’s a very paper-driven industry – financial planning businesses are much more like a cottage industry than an industrialised model, if you like. So our challenge as the biggest player in the marketplace is, how do we improve the efficiency of financial planners – which essentially means how do we improve the amount of time that [they] have to meet clients, rather than doing their paperwork or administration. Within both AXA and AMP, that’s been an ongoing development, and will continue to be.”
High on the agenda following the merger will be a decision on whether to step up the Horizons operation. Meller says AMP sees the academy as one of the best ways to find new planners to feed into the existing AMP network – to either set up their own practices, or to give existing practices a source of fresh talent for expansion and, in a number of cases, succession.
“One of the things we’ll be looking at is, do we want to ramp that up in the bigger business so we can make sure all the financial planning licensees have the capacity to grow at the rate AMP Financial Planning has been growing,” he says.
“We’ve taken the view very strongly that this is a profession and you need very high quality financial planners. If we’re going to grow our own, we have to invest in them. One of the challenges we’ve addressed in the last few years is how much can we afford to invest in that, because it’s costly and the market doesn’t like to see our costs rising too fast. On the other hand, we know it’s a strong investment in the future of our business. Whenever we’ve had spare dollars, we’ve tended to put it into that part of the business because we know that’s good for the long-term growth of the business.”
Dunn says the academy is trying to get a financial planner to a quality and productivity point “sooner than they otherwise would”.
“I don’t know what it’s like in other industries, but I presume it’s similar, but you’ve got a person running a small business who has pressures of compliance and all those things that may be totally appropriate, but there’s a lot of pressure on small business; there’s a lot to do, including being in front of clients, while at the same time bringing on new planners into the industry and training and developing them – that’s hard for small business to do,” he says.
“And what the Horizons Academy tries to do is provide that support, so when they do come into their businesses, they’re a step ahead in the quality and productivity, so it’s more economic for those businesses to take them on and to grow and build them.”