Are dealer groups a barrier to true professionalism?

President of the Boutique Financial Planning Principals Group Claude Santucci says advisers are seriously questioning the benefits they are receiving from their dealer groups.

A recent piece on Professional Planner Online, “Challenge and consider changing your licensee” reflects the advice given to members of the Financial Planning Association (FPA) of Australia by the chief executive, Mark Rantall, to stand up to their licensees or employers if they are put into a situation where they cannot act professionally and in their clients’ best interests.

The advice is sound: try to change things internally, get your colleagues to support the changes and, if that fails, seriously consider changing licensees.

Those with the required courage and tenacity to attempt change within their licensee certainly have the qualities to operate under their own licence, an option that ought to be given serious consideration.

As professionalism increasingly takes hold in financial planning, advisers will seriously question the benefits they receive from being licensed through someone else and address the inherent problems of ownership and disclosure.

I am not suggesting that financial-planning practices owned, in part or full, by an institution or dealer group cannot offer good advice, but it is perfectly reasonable to consider the difficulties in managing inherent conflicts.

What do you do when the advice you want to give your client is not the advice your licence owner wants you to give, or at the very least, prefers you to give?

Full disclosure

Professional financial planning comes down to putting clients’ interests first.

Enshrining the term “financial planner” in law will help, but it is only a part-solution.

As long as there are financial planners employed by institutions with product to distribute, there will be pressure to distribute those products. I make the proposition that full disclosure of the ultimate owner of the licence is just as important as giving a legal attribute to the term “financial planner”.

Unfortunately, full disclosure is not high on the regulator’s agenda. Based on my own experience, I have long held the view that the dealer-adviser model has flaws that have to be managed very carefully.

There is an inherent conflict between the adviser and the dealer based on the fees earned by the adviser and the portion shared with the dealer. The more successful the adviser the sharper the focus on that portion paid to the dealer.

The problem hit me in my last year with a dealer when I had to give away a substantial amount of income for services that I considered average at best and unusable at worst.

Additionally, within our practice, the competition for business between four advisers in one practice, essentially running four separate businesses, under one licence was fierce and often bordered on conduct unbecoming of professionals, even adults.

I believed then, and still do today, that a better way forward was to get my own licence. The success of that practice over my 13-year involvement and since is proof that the decision was right for me and for our clients.

I often hear that it’s all too hard to get your own licence. Putting aside the well known fact that anything worthwhile is often more difficult than the easier or temporary option, I can attest that it is not so difficult. Time consuming, certainly, and more complex than it need be, but, for many, it is the path to true professionalism.

The Boutique Financial Planning Principals Group (BFPPG) was established over eight years ago to address the specific issues of independently owned financial planning practices that had their own licences.

Over the years, our members have collectively built up a wealth of experience and knowledge in this area, which is available to anyone seriously considering obtaining their own licence.

All of the resources of the BFPPG are available to associate members as they work towards their licence. Membership has increased through referral and has come mainly from advisers disenchanted with their dealer relationship.

I understand that many advisers want to be free of the responsibilities that come with the licence but they value the ability to give advice free from outside influence.

To them, I would advise changing to a dealer group that is not institutionally owned so as to remove the potential conflicts that limit true professionalism.

Claude Santucci is president of the Boutique Financial Planning Principals Group.