Suncorp is offloading its external advice channel Guardian. In recent times we have seen netwealth ditch Financial Planning Services Australia, and also the much-publicised Genesys shutdown by AMP. Other channels are likely to follow.
It is very difficult for the advisers caught up in this process. They will be inundated with offers as other licensees seek to secure them to their networks. Their difficulty will be compounded by the shock of the cost of obtaining an authority via an independent licensee.
Institutional licenses are almost given away in the expectation that the expense of running a licensee can be recouped through the support they provide for the parent’s product. Just what those advisers will pay now for an authority is difficult to assess, because independents have different pricing models. But it will be much higher.
Their choices aren’t clear. Do they opt for the cheapest pricing with little or no real support? Or, do they need the comfort of an institutional model despite the possibility of being dumped again in future? Or, would they rather become truly independent, gaining the flexibility and support to grow and prosper and pay a little extra for it?
There are now nearly 9000 financial advisers who fall under the umbrella of major financial institutions, according to the ASIC financial advisers register, making up 39 per cent of the industry. Many of those have cause to worry about their future. By any measure, what we are seeing is a massive restructuring as the major banks and AMP examine the benefits they receive from their wealth distribution arms.
Traditionally, the business model of the major players has been one-off transactional banking transactions. It isn’t difficult to see, therefore, why their boards and management are reassessing the need to retain relatively high-risk external financial advice channels. The record shows that their contribution to total company profits is small in comparison with the overall business, and in some cases has been falling.
Conflicts between product and advice
Also, the Murray report highlighted the conflicts between product and advice, with emphasis on the problems associated with vertical integration as exhibited by the institutional advice models. The ongoing negative press and brand damage surrounding the Commonwealth Bank’s issues involving advice will put further pressure on institutions to determine whether they really want to be in the advice business.
More and more, the big players will pitch offers directly to their customers. This is a cheap and relatively safe approach leveraging the strength of each bank’s brand. But it will disenfranchise their advisory networks.
Clearly, if advisers support their parent’s product then there is a symbiotic purpose for them to be retained. It is hardly surprising to see institutional owners wanting to offload unprofitable, non-supportive advisers.
One thing is clear. Everyone will be watching closely to see how this exodus goes in the coming months. In Suncorp’s case, advisers have effectively been told to find a new licensee. They have six months to do that, and then Guardian will be shut down.