Centrepoint Alliance, the ASX-listed licensee and advice services firm, will be among the first scaled advice businesses in the country to reset its pricing to reflect the “real cost” of supporting authorised representatives, its chief executive has said.
The company, which acquired Gold Coast headquartered advice aggregator Professional Investment Services back in 2010, has completed an almost year-long project to recalibrate its business model and will implement a transition to a new pricing arrangement for its authorised representatives (ARs) from July 1.
While Centrepoint’s new pricing is currently still being “socialised” within its network, the company’s CEO Angus Benbow has confirmed the cost will increase for most if not all ARs and boutique/self-licensed advisers who use the group’s licensee services.
Under Centrepoint’s new model, ARs and boutique licensees will sign up to a “core package” with the option to add additional high quality services from a menu for an additional cost.
Benbow said the new pricing will reflect the cost of providing services to advice businesses, independent of product revenue subsidies the business and the industry more broadly has relied on in the past.
“Dealer groups have been subsidised by product revenue, there’s no doubt about it. Be it in a vertically integrated model where your dealer fees have been subsidised by the margin in the parent’s platform, or a model like ours and others in the independent space where they have used a combination of historical rebates or other margin to discount the other services they provide,” Benbow described.
“We currently charge a dealer services or advice services fee [under the existing arrangement] but its heavily discounted by these rebates and other margin discounts,” he said.
While the new pricing has not yet been made public, it is understood – based on the numbers in Centrepoint’s latest FY2019 first half results – costs to ARs and licensees in the network may need to almost double to account for revenue shortfalls between the old and new models.
According to the group’s results announcement, the business received $6.2 million in revenue in H12019 from “grandfathered” rebate revenue towards an $11.4 million gross profit for the same period.
New world pricing
Unsubsidised AR services can cost licensees between $38,000 and $45,000 per year per adviser in the industry more broadly, according to benchmarking done by specialist consulting firm Peloton Partners, Rob Jones.
Benbow is convinced the repricing of AR and licensee services which Centrepoint is frontrunning is a positive evolution for the advice industry.
“The best place to be in the chain is the adviser because wherever you are closest to the client you get to defend the revenue the most because you’ve got that trusted relationship,” Benbow described, during a conversation with Professional Planner.
“Advisers end up getting the services they actually need to run their businesses in this model ,” he said.
The cost to the client doesn’t change or may even improve at the end of the day because rebates and platform repricing will lead to cheaper administration and investment services, he explained.
Centrepoint currently uses Ventura Managed Accounts Portfolios, a white labelled Praemium managed accounts solution, and also has platform relationships with Colonial First State’s Investment Exchange, BT’s Assemble, IOOF’s Annex and ANZ’s Mentor.
Rather than focus on platform and product deals, Benbow said he’s spent the past 11 months working on procuring services to help advisers run their businesses. Business coaching, HR and legal support, lead generation, client segmentation, adviser education, technical and research support are among the services Benbow has worked on building out with a focus on providing the services inhouse.
“When I came in in April last year with a mandate to do an overhaul, the conversation I had with the board on the way in was ‘if you are looking backwards and want a traditional licensee or dealer group business, that’s probably the way the market is heading and not the opportunity to a true advice focus business,” Benbow, who was chief executive of Shadforth – the dealer group subsequently bought by IOOF – for two and-a-half-years before taking the Centrepoint role.
At the core of the Centrepoint strategy is its scaled business management and advice services solutions, Benbow said.
“In the past, dealer groups would say ‘how do we use the scale of lots of advisers and the FUM we’ve got with our clients to drive a better price on the platform.’ That’s what a lot of the model was. This is almost the exact same model but relating to services,” he said.
“The new pricing we are bringing to market will be the first stage in a transition to a new world pricing structure which will become more compelling as we build scale,” he said.