Asset-based fees are unavoidable if financial planning practices are to maintain a sustainable level of profitability, according to the head of a non-aligned dealer group.
“As a licensee, I think it’s almost impossible to operate sustainably without product margins. That’s just the way [Future of Financial Advice] FoFA and the institutions have forced the game,” says John de Zwart, managing director, Centrepoint Alliance
“You look at the average cost to service an adviser, I think it was $57,000 last year in the information that I’ve seen. And yet if you tried to charge $57,000 plus a profit margin on top of that to practices and individual advisers, you wouldn’t have too many clients at all.
“There’s this perception that advisers want a non-conflicted model, but they’re not prepared to pay for it, in my general perception,” he adds.
De Zwart believes we are likely to increasingly see AFS licensees differentiate themselves by sourcing the best solutions in the marketplace for quality, professional advisers, using these to attract both advisers and clients.
“If they fail to perform, then we’re able to replace those. It’s more about getting the purchasing power and the leverage [from your licensee].
“Where the market’s heading now, we need to integrate a lot of these solutions back into your IT, paraplanning, your Compass or XPLAN solutions, it’s those that really give a benefit back into the practice.”
He says Centrepoint surveyed its top 20 practices asking how many platforms they worked with. “The minimum number was eight. If you asked them, they’d say one or two, but they’ve still got all these legacy portfolios. And that’s just an amazing inefficiency that’s sitting in there.
“They’re some of the things that I think we need to identify and to really get these scale and efficiency benefits in some of these growing practices,” de Zwart says.
Growing Alliance Wealth
For the year ahead, de Zwart says Centrepoint will be focused on growing the scale of its financial advice business, including its latest addition of Alliance Wealth.
Launched in the last quarter of 2014, this has two separate offerings: Alliance Wealth and Protection (AWP) and Alliance Wealth. AWP provides a model for financial planners wanting to work as employees.
“This is for those who want that security of a regular income. Or they might be coming through from an early stage in their career, so it provides a training ground, and then an exit strategy for those who might want to take a different route in advice,” de Zwart explains.
Alliance Wealth is the dealer group’s offering for self-employed advisers, providing the support of a good governance model, IT infrastructure and the flexibility.
This comes as an addition to its PIS licensee and its lowest-touch offering of Associated Advisory Practices (AAP) licensee services, which gives external licensees access to professional indemnity insurance, compliance support and administration services.
PIS will live on
The dealer group is set on continuing to grow its business across the multiple licensees, with no plans to drop the PIS license, according to de Zwart.
“We’ve put on a lot of advisers in PIS in 2014, and a lot of those predominantly have been organic, with advisers joining existing practices.
“Overall, I think the independent space has some good growth. We’ve grown since February and March last year. And even though we’re trying to grow books through some of the older advisers, we’re still seeing overall growth in the number of planners.
De Zwart declines to give specific details on how many advisers are part of the AWP and Alliance Wealth licensees, but says growth in advisers numbers here account for around 10-15 per cent of the group’s overall growth, with a few new advisers joining since it launched last quarter.
“In total, across AAP, Alliance Wealth and PIS, there are about 540 practices nationally, which represents about 1500 advisers.
“Overall, if we were to reduce our adviser numbers over the next three years, that would not necessarily be a negative outcome for us, it would be a positive outcome,” de Zwart says.
Over the next 12 months, he says the group will be concentrating on “helping to industrialise, to become more efficient,” particularly within PIS.
“A lot of inefficiencies were introduced as a result of the FoFA changes. Technology is now moving ahead so you can get some of those scale benefits…and hopefully FoFA starts to stabilise so we can invest in standardising more of the systems and processes.
