As the financial planning industry was undergoing a consolidation into institutional hands, driven largely by the global financial crisis (GFC) and regulatory uncertainty surrounding the Future of Financial Advice (FoFA) changes, the non-aligned sector was undergoing changes of its own.
As a sector it was forced to lift its game considerably, to develop more robust systems and processes to meet new, rising compliance demands, and to provide a longer-term, viable alternative to institutional licensees.
Those demands are behind much of the merger and acquisition activity that has characterised the sector, such as Australian Unity’s takeover bid for Premium Wealth Management, and other recent merger and acquisition activity.
In a series of interviews that will feature in the September edition of Professional Planner magazine, leading non-aligned financial planning licensees have highlighted how the sector has adapted to regulatory and economic uncertainty to emerge stronger and more robust.
Read Professional Planner’s series on non-aligned advice groups:
Part 1: The future in focus as non-aligned groups exploit the growing gap with institutions
Part 3: Proof of non-aligned business model emerging in Centrepoint performance
AFA: Move away from institutions sees non-aligned licensees driving innovation
How healthy?
How healthy the non-aligned sector was pre-GFC and pre-FoFA is open for discussion, says Steve Davis, chief executive officer, Australian Unity Personal Financial Services.
“You’ve seen over the last three or four years quite a number of particularly smaller non-aligned licensees run into financial difficulty,” Davis says.
“There’s actually been a bit of a thinning of the herd, where some of the weaker really haven’t survived, and their advisers have ultimately moved on to other licensees. Some of the other non-aligned licensees have had to get a little bit bigger, and have had to get better at really how they help advisers with some of the back office efficiency and other tools like that to help advisers run a more efficient business.”
Non-aligned licensees have had to improve simply to keep pace and remain competitive, Davis says. But they have also had to develop ways to create value propositions that offer a genuine alternative to institutionally owned licensees.
“It’s really critical for advisers in a post-FoFA world where you’ve had a significant lift in compliance work, that you’re doing other things as efficiently as possible,” Davis says.
“It is possible to bring those sorts of qualities to bear in the non-aligned space. But you need to have sufficient scale to be able to afford to do that. It’s about having the right head-office staff, who can help configure things like Xplan or Coin or whatever, and to have a good investment research person or team to pull together model portfolios that can make an adviser’s operation more efficient; and technical support – all those sorts of things.
“But without having sufficient scale and revenue you can’t provide all those services and [then] you almost have to have a different sort of model that provides less service to the adviser and the adviser has to go and find some of those other things themselves.”
True advisers
Davis says the non-aligned sector is clearly positioning itself as the home for “true” advisers, as opposed to being distribution mechanisms for institutions and their investment products. That drive to own distribution helped fuel the consolidation.
“It was recognition by product manufacturers and platform providers that they needed advisers to distribute their product,” Davis says.
“As a result, they felt they had more control over doing that if they had ownership of the dealership and therefore could control the approved product list, et cetera. I do think it’s unfortunate that in most organisations they still look at advice as distribution, when advice shouldn’t be about distribution.”
Davis stresses that the advice provided by institutional licensees and their advisers is not necessarily poor. But independence and flexibility can be offered more easily in the non-aligned sector, and that’s attractive to a certain type of adviser.
“Really good advisers want to be able to be less constrained in their advice process, in the types of products and platforms they can provide access to for their clients,” he says.
Healthy business
Davis says the key performance indicators of a healthy advice business are often unrelated to funds under advice (FUA) or funds under management (FUM), or even the number of advisers employed.
One key measure, he says, is “the level of complaints, which I’m happy to say we run at about 90 per cent lower than the industry average”.
“I touch wood when I say that; there’s always an element of luck in some of that, but there’s less luck than perhaps there might be in some other things, because we have been fee-for-service pretty much since the business was set up, so about eight years now,” he says.
“We didn’t like agribusiness, because we didn’t see how that could actually work; we didn’t lie structured product because its all too complex and at the end of the day too bloody complex and it’s hard to see how a client could make money. And by staying out of those things and having prudent gearing guidelines, you actually avoided the main things that have led to h waves of complaints. That’s another important metric for us.
“But even more important that the overall dealership growth is growth at an individual practice level. We do really work hard with our advisers to help them grow their businesses. Over the last couple of years, practices that have been with us for a few years have been growing on average at about 28 per cent in terms of revenue. That’s a really positive environment we’re fortunate that we do have younger cohort of advisers and that’s a good thing too – because they’re in that business growth phase.”
