Madison Financial Group will aggressively cut the number of products on its approved product list in coming months, but has modest targets for growth in adviser numbers in the year ahead as it becomes increasingly selective about the type of adviser it will take on.
Speaking at the Pharos annual conference in Canberra last week, Madison general manager Giulio Russo (pictured) said an extensive and unwieldy APL is not serving clients’ best interests and exposes the licensee to unacceptable risks.
“We’ve got 600 products on our approved list,” Russo said.
“Three hundred of them are closed, which we can’t do a lot about and you’ve got a lot of clients in, and obviously we don’t want to get them out of there because of capital gains tax issues.
“The other 300 products out there are a risk to us. There are 25 sub-sector asset classes that you can potentially put your clients into. What you really should have is three or four best-of-breed products with the top fund managers in each of those subsectors. That’s all you need.”
Russo said Madison will use Morningstar analysis to “filter through all those products that are on [the APL] and really ask the hard question: ‘Is this the best range of products that you can give to your clients?’”.
“We’re also going to be more diligent around any product manufacturers going to you directly about adding a product,” he said.
“Our mantra has been: if you put a product forward we’ll have a look at it; if it suits your client base and meets some of the risk profiles, we’ll put it on. The criteria from now on will be, once we come up with our [list of] 100 products – whatever that might look like – and there’s a new product you want to add to the list, what is it going to replace? Why? Is this better than the one we’ve already got?
“We can’t put ourselves at risk with so many different products out there. We’ve got to make some decisions. And it will be in the best interests of clients. The best thing you can do for your client is give them a choice of best-of-breed products, not open them up to 200, 300, 400 product choices.”
Modest adviser growth targets
Russo said Madison has modest targets for growth in adviser numbers in the coming year, but will be ruthless about the type of adviser it takes on. He said the group is not interested in attracting new advisers whose value proposition is essentially a DIY investment service.
“They are not part of our business model,” he said.
“They are high risk to us, a huge compliance risk to us. They are traditionally not profitable, because we’re spending more time with them sorting out problems as opposed to them being efficient, and we need to put our resources into those advisers and practices that are on the journey with us.
“We’re going to be even more selective about the type of adviser and practice that joins our business. We can’t afford to have business models that are going to be broken…and I think the DIY adviser practice [model] is broken – unless you want to be a stockbroker.”
Russo said Madison will target advisers who want to be “active and engaged with us”.
“They want to seek our help and use our resources and definitely want to partner with us,” he said.
“They want business coaching, so that covers a whole range of things around how they attract clients, how they run their business, how they deal with staff – all those sorts of metrics. We want strategic planners, so they are planners who are not interested in making their own investment portfolios – that’s a dangerous position to be in.”
Russo said some current Madison practices are successfully focused on creating their own investment solutions for clients, and can continue to do that.
“But for new advisers coming on board, we want strategic planners: those who are going to spend time with their clients, adding value to their financial objectives and goals, as opposed to being a portfolio manager,” he said.
“And again, the type of adviser we want uses the Madison investment solutions and adopts the Madison way.
“We will transform our business so that this time next year we will have hopefully 20 new advisers on board who look like this, and they can share their experiences with you.
“So what’s under review to help us get through this journey? We are reviewing the investment committee: do we have the right inputs; have we got the right people there; have we got the right research houses to help us through making decisions; how are we going to be more decisive in our actions? I think sometimes we’ve been a little bit slow or inactive. How can we improve communication [and be] more effective so you can translate what we’ve come up with to your clients really quickly?”
