July 1, 2019 was a banner day for Angus Benbow, chief executive of licensee owner Centrepoint.
Not only did it mark the cut-off date for all of its advisers to commit to a fee-for-service payment model, but it kicked off Centrepoint’s transition to a fee-for-service model for its dealer services arm, Associated Advisory Practices (AAP).
“We’re using the same framework and models that we used to transition our licensed advisers… and we’re doing exactly the same thing with our self-licensed advisers,” Benbow tells Professional Planner.
Of the 227 advice practises under the Centrepoint umbrella when Benbow took up the reigns in April last year, 86 per cent agreed to transition to a model whereby the licensee is paid on an annual fee-for-service model, free of grandfathered arrangements and any associated conflicts. A few left, but not many.
Benbow is careful to note that Centrepoint is not yet free of conflicted payments for licensing. “We haven’t completely got rid of the legacy arrangements in the license – it’s a transition during this financial year because many of those are grandfathered under FOFA,” he explains.
Importantly, however, all the remaining advisers have committed to fee-for-service licensing. This comes after an extended campaign Benbow detailed at the Professional Planner licensee summit in June, which involved “socialising” its new fee arrangement for advisers.
Now, he says, the licensee will focus on convincing its self-licensed, dealer services clients to adopt the same model.
According to Benbow, the reasoning he’s doubling down on the fee-for-service model is straightforward; if someone is procuring a service for a fee, the payment for that service should not be subsidised through any legacy or grandfathered product arrangements.
“There has been cross-subsidisation from old product or legacy margin arrangements that has effectively meant the direct fees for services has been subsidised,” Benbow says. “We want to move our business to be a transparent one… where the fee should be correctly linked to the delivery of the service.”
At this point the transition to fees-for-service licensing provision hasn’t impinged on the Centrepoint’s bottom line. After posting a $3.4 million loss in FY18 the company reported a pre-tax profit of $1.2 million in FY19.
‘The transparency helps’
Transparency has been a consistent theme during Centrepoint’s transition to fee-for-service licensing and figures to be a key element of the dealer services transition.
“We’ve been quite open about our fee model,” Benbow says, before explaining that the licensee is in a “transitional year”. Advisers are currently charged a discounted fee of $32,000 for licensing while Centrepoint is still receiving payment from providers, but next year authorised representatives will be charged $45,000.
“That $32K to $45K step is recognition that we do receive some rebate still; we can’t necessarily turn it off straight away because there are legacy arrangements within old products,” he says.
Few licensees are willing to divulge their pricing so readily. Benbow reckons this honesty was the key to getting adviser on board on the licensing side, and will be just as important during discussions with dealer services clients who range from solo outfits to self-licensed firms with “40 or 50” advisers.
“The transparency helps,” he says. “We’ve been very open about why we’re moving to a fee-for-service model and away from any of the conflict. The reality is that legacy arrangements are in decline, they’re in runoff so we need to move to a transparent fee-for-service model to continue to provide these services for them.”
Asked if working out fixed fees for dealer services could be problematic due to the often-bespoke nature of the arrangements, Benbow says Centrepoint has done a “huge amount of work” understanding the cost to serve.
“Effectively you’re a service provider now, and the way you service providers costs is not on investment margin, it’s on the cost of the delivery for those services plus a margin that would be appropriate from a service provider,” he says.
The new dealer services payment model will be on an annual basis, he says. The self-licensed model will move to a modular approach “modular”, whereby advisers can purchase any or all of four service elements; governance, advice, business management and client growth.
“Those modules are the same as our core offering for licensed advisers, but the self-licensed advisers can buy them individually, he explains.
In addition, Benbow says there is a “whole range of variable services” self-licensed advisers can pick up, including advice technology consulting, research committees and model portfolios.
“Those variable services we would price up directly,” he says.