The number of unsettled advisers is swelling and they’re about to start agitating for change. Ray Miles explores their options.
There may only be a handful of sizable independently-owned dealer groups left due to consolidation, however, there are hundreds of well-run small advice businesses. Some hold their own Australian Financial Services Licence. Others are licensed by an institution.
The institutions successfully recruited from the latter cohort ahead of the Future of Financial Advice (FoFA) reforms. They shelled out millions of dollars to entice established practices to join their aligned networks in a “land grab” to shore up distribution.
However, the time is almost ripe for independently-minded advisers to band together and rise up.
Ironically, it will be the practices that took the big cheques that will lead the revolution. The principals of these practices used their entrepreneurial flair, ambition and creativity to build large profitable businesses. Many grew up under the protection and relative freedom of an independently-owned licensee. In this nurturing and democratic environment they were able to challenge tradition, bounce ideas off like-minded people, develop new solutions for clients and achieve high levels of personal and customer satisfaction.
Others built a reputation for integrity within the institutional framework. They didn’t receive any cheques.
Lure of the cheque book
For many of those who hailed from a non-aligned dealer, the lure of the institutional cheque book proved too strong. They switched dealer groups during a period of fear and uncertainty ahead of the introduction of FoFA. Perhaps they believed times had changed.
In the past two years, they have come to the realisation that life under an institutional AFSL isn’t right for them. They’re starting to feel agitated.
Those contemplating their next steps have three main options. They can go back to where they came from; they can apply for their own AFSL; or they can partner with other professional advisers to leverage their scale to negotiate better rates and push fees down.
It’s unlikely they’ll go back to where they came. That may seem like a relatively good option but they had their reasons for leaving. Few will opt to gain their own AFSL because while they’re excellent advisers, they recognise they don’t have the time, ability or desire to run their own AFSL.
A new AFSL
This leaves joining a new AFSL.
Trust and transparency will be high on their list of priorities however dealer groups haven’t historically been able to deliver either.
They may need to reinvent the wheel. Another generation of independently-owned licensees will rise up.
For those who breakaway from the institutions, there will undoubtedly be strict terms and conditions attached to any licensing agreements and sale contracts including lock-in periods. Once that time is up, there will be a lot of movement.
This event has been described as the shift from “consolidation to fragmentation” by Yellow Brick Road chief executive Matt Lawler.
Inevitable breakaway
Consultant Jim Stackpool says the “thinking adviser” will inevitably break away while US-based consultant Dan Sullivan has called the next generation of independently-minded practitioners, “Producer Groups”.
He defines them as “independent financial services marketing organisations”.
The term “producer group” isn’t appropriate in the Australian context. It’s too sales-oriented, which is what the industry is trying to distance itself from. However, Sullivan has some interesting points.
He believes that governments globally will turn to the financial services sector to help relieve them of their traditional responsibilities to provide welfare, healthcare and retirement benefits. In this environment, producer groups will thrive.
In Australia, the constant changes to superannuation, pension and tax rules have already made top advisers a better source of direction and confidence for their clients when it comes to wealth management and retirement planning.
Execution has been poor
The institutions were quick to identify opportunities in wealth management but their execution has been poor. Their natural instinct to push product and chase margins will continue to undermine their advice.
Having said that, for the majority of advisers, an institutionally-aligned dealer group is the best place. They need the support and they don’t want to pay too much for it. They also want the security of a guaranteed buyer when they decide to sell.
On the other hand, there are many advisers who want to be part of a non-aligned group. They’re willing to pay a fair price for independence and good service because they expect their clients to do the same.
Deep understanding
These advisers want to deliver holistic, tailored advice that is based on a deep understanding of a client’s goals and objectives, lump sum and cashflow needs, and any philanthropic ambitions. They understand that ultimately more and more Australians will demand this type of advice. As a result, they will attract the most sophisticated clients. People who have previously avoided the advice industry and tried to go it alone such as self-managed superannuation funds and ultra-high net worth families and individuals.
Supported by mandated superannuation, referrals and a cooperative licensee, these breakaway groups will grow to become large, highly profitable and influential.
Great story Ray. As General Manager of ARRIA, I am lucky enough to talk to advisers every day, who are looking to improve outcomes for clients.
These are all ‘independent’ thinkers… and interested in networking with like minded peers and industry stakeholders. ARRIA is wanting to create the forum for these industry stakeholders: http://www.arria.com.au
I could not have described the intent of ARRIA any better… “… In this nurturing and democratic environment they [are] able to challenge tradition, bounce ideas off like-minded people, develop new solutions for clients and achieve high levels of personal and customer satisfaction.”