More than half of a targeted 50 per cent reduction in the back-office expenses for Professional Investment Services financial planning practices will come from switching to managed accounts, the chief executive officer of Centrepoint Alliance (CPAL), John de Zwart, says.
About 12 months ago, CPAL unveiled an efficiency program designed to slash the amount of time and money PIS advisers spend on on paperwork and compliance-related administration. This followed an analysis of PIS practices that discovered that about 72 per cent of planners’ time was consumed by administration and compliance-related activities.
And the Top 10 practices in the PIS network use at least eight platforms each to implement investment solutions, de Zwart says.
He says Centrepoint wants to free up more of its planners’ time to focus on activities it perceives as genuinely adding value and improving the quality of advice, including spending more face-to-face time with clients in a coaching, mentoring and educational role.
Centrepoint’s aim was to reduce the time its planners spend on administration and compliance by 50 per cent over three years, and to “bring back the fun” of being a financial planner. It has moved to improve the IT underlying its compliance systems, outsourced paraplanning, and is encouraging advisers to move away from direct equity investment propositions to managed accounts.
“We launched [the efficiency program] in April 2014, and it’s now about how do we get advisers leveraging that into their businesses,” he says.
“That’s the hard part: changing behaviour.”
Half the efficiency gains
De Zwart says simply moving to a managed account platform can cut the amount of time a planner spends on administration and compliance by as much as 25 per cent – about half of the total efficiency gains Centrepoint is aiming for.
He says that under direct-investment models if an adviser wants to move a client from, for example, BHP to Rio, it requires a new statement of advice and a wait for the client to respond. In the meantime, the market may have moved. A managed account enables an adviser to carry out “real-time active management” and implement portfolio changes quickly and efficiently.
“It’s a change of proposition,” de Zwart says.
“For a large proportion of advisers today, they are still in that situation their proposition is around being an investment manager, maybe even a stock picker, and they have not got to that point of knowing how to set out a long-term plan for clients and then consult with clients on an ongoing basis.”
Shifting the emphasis from picking stocks “puts them out there as someone who is focused on the quality of advice for the client, and then outsources that investment management to professional fund managers that are set up to do that sort of thing”, he says.
“The greatest asset an adviser has is their relationship with the customer. What we need to be able to do is strengthen and build on that relationship.
“Now that we have got the tool kit launched, and we built most of that last year, it’s now about going one-on-one with each practice.
“It will take some of these guys not just six months; it will take them many years to move their clients into a new environment where it’s very efficient and there approach to advice becomes more consistent.”
Growing ranks
De Zwart says PIS has added more than 100 advisers to its ranks since November 2013. However, he says adviser numbers won’t be a focus of the business in the year ahead, and in any case, finding advisers of the right quality to take on is becoming increasingly difficult.
He believes “a lot of licensees are moving towards a quality focus, given the press and ASIC’s focus”, which he says Centrepoint welcomes.
“Now planners who have issues with their compliance or the quality of their advice are having difficulty finding a home,” he says.
“The industry as a whole has actually got its act together.”
In addition, de Zwart says Centrepoint is moving from more than 100 different ways of collecting fees from advisers to a single method: a flat fee, based on number of advisers practice, billed monthly.
It is a mystery how the company allowed more that 100 different fee collection methods to be used.
“I haven’t asked,” de Zwart says.
“But I do not think we are atypical.”
Last week Centrepoint Wealth Alliance – which consists of PIS, Associated Advisory Practices (AAP) Alliance Wealth, Ventura Funds Management and Investment Diversity – announced a 29 per cent lift in pre-tax profit to $4 million. Revenue across the Centrepoint group declined from $27.4 million to $26.1 million, but group profit after tax increased by more than 120 per cent, from $1.3 million to $2.9 million.
