Much has been made of the blow-ups that have occurred in the financial advice businesses of some of Australia’s largest financial institutions. But are there advantages to being under the institutional umbrella, both for you as a planner and also your clients?
Meritum Financial Group is an Australian Financial Services licensee owned by National Australia Bank – alongside MLC Financial Planning, Apogee, Godfrey Pembroke and Garvan.
Having been both a non-bank-aligned and then a bank-aligned entity, Meritum’s general manager Stephen Trist is well-placed to comment in this debate. Prior to 2010, when it was acquired by NAB’s MLC private wealth division, Meritum was part of Aviva.
Asked what he believes is the core value proposition of institutionally owned licensees, Trist refers to the greater access to resources and compliance structure.
“I’ve found that sometimes they [non-aligned practices] don’t have a structure to go beyond a certain size, [and] too few people, particularly around compliance.
“A lot of them then choose to outsource that compliance. What you get is a bit of a stock-standard compliance service, which I think in these times, a lot of them suffer from not having the resources to deal with the number of issues that an AFS licensee is going to face in future. You get a broad and deep set of resources supporting compliance, processes and technology,” he says.
Trist believes that sitting inside an institutional model, there is less reliance on individuals and more of a dependence on processes.
Genesys and AMP
Trist also refers to the recent rumours about rumblings of discontent among AMP’s Genesys AFS licensee.
“I don’t know whether it’s real or not [but] if there’s a group of advisers that want to break away from an institutionally owned licensee, I think it’s borne mostly of them feeling they’re going to be dictated to more and more,” he says.
“And so, I think a lot of them say, ‘Well okay, you own the license but you don’t own me’.”
He also doesn’t feel that this will be a trend that takes hold across the financial planning space.
“Whether it amounts to a quantum, I’m not quite sure, but my gut feel is it probably won’t,” he says.
The independent view
One of the relatively small number of truly independent financial planners in Australia, Ben Smythe of Smythe Financial Planning, thinks otherwise.
He believes there is a shift in favour of financial planners that aren’t part of Australia’s banking sector.
“Things are going really well,” he says.
“The timing at the moment is going in our favour. There are a lot of people who just won’t deal with instos in the wake of what’s happened.
“It’s become so mainstream. Everyone knows about the CBA debacle.”
Smythe says consumers still don’t necessarily understand the terminology or the more subtle nuances between non-aligned and independent financial advisers, but they do understand the distinction between independent and bank-owned.
“I think clients are becoming more cognisant of the question. In their minds, they’re sort of thinking ‘I need to ask that question’,” he says.
Independence gathering momentum
Beyond this, Smythe says the interest in independent financial planning models is also coming from planners. This is a key reason why the Independent Financial Advisers’ Association of Australia (IFAAA) is holding a symposium in November.
“There is a lot of interest in the independent space,” Smythe says. He and the IFAAA recognise that the organisation needs to grow if it is going to play a key role in the expansion he believes the independent space is experiencing.
“It’s a good cause, it’s what we’re all passionate about,” he says.
“We know unless we get more numbers, we’re not going to be credible as a voice.”
Movement among planners
Smythe says that a correction is due after a phase of consolidation the financial planning space went through in the lead up to the Future of Financial Advice (FoFA) regulatory changes.
“I would say in the next 12 to 18 months, we’ll see the entrepreneurial, independent business model re-emerge,” he says.
“I think once the golden handcuffs come off, a lot of [planners] will go and set up a three- or four-man independent advice firms.”
That’s not to say that achieving independence is either easy or suitable for every financial planner.
“The challenge, to be truly independent, is that it’s not necessarily in the best interests of the adviser. I could make a lot more money out of selling product,” Smythe says.
“Every bit of advice, you’re trying to add value through advice, not product. It’s more labour intensive, it’s not as scalable as a product and advice business.”
Interesting article and views about re-emergence of independent morality but the truth is every major breakaway has been sponsored with cheques exceeding a million dollars. Not certain but I think it would be fair to say this also happened with Meritum? if so its hardly a corridor of truth to what the options were at the time.
FoFa is having a direct impact on thinking because margin sharing at product level is being squeezed ( VB’s for example ) and net rate cards are making it hard to explain why some clients are on one rate and new ones on another…..
Equally the instos are now saying you can use open architecture but if you do….the subsidies at Dealer level reduce and you pay more for licensing – so the practices get anxious about paying for something they haven’t paid for in the past and then start looking around for better value.Not many move though > look at the facts not the emotional commentators.