Despite the fact that it’s three amalgamated brands should give MLC licensee spin-off TenFifty around 450 advisers, CEO Brendan Johnson says the newly minted dealer group will sacrifice a good deal of that scale and run more of a boutique licensee with far less advisers on the books.
Since National Australia Bank’s MLC Wealth announced the retirement of its Garvan, Apogee and Meritum licensees in May, Johnson and his team have been shaping the new TenFifty brand into a cleaner, leaner model than the simple sum of those three brands.
Cleaner, he says, because the licensee is not accepting any product subsidies and advisers under the TenFifty umbrella must run fee-for-service client remuneration models with contracts renewed annually.
And leaner, he continues, because not everyone will be along for the ride.
“We are inviting businesses that want to be part of it, and it doesn’t fit for all of them,” Johnson tells Professional Planner.
The challenge ahead for Johnson is daunting. He needs several tribes of parochial advisers who are likely anxious about their future to coalesce and form a cohesive unit.
It’s not just a matter of cobbling the old licensees together and carrying on, he says. The new group has advisers from a cross-section of other licensees – including some of the franchised practices from NAB Financial Planning – which has led to a cultural refit and an entirely new identity.
“And that process will result in a lower number of business,” the CEO says.
The new mindset is why the group spent so much time and effort on a “symbolic” rebrand. TenFifty didn’t want to replicate something or merely tweak the old model, he explains, but create something new.
Johnson hopes that what TenFifty loses in scale they will make up for in culture and community.
“The test of what is too big is if I don’t know every busines owner in the network,” he says. “If they don’t know me then we’re too big and it’s not a community anymore.”
A necessary impost
The abandonment of product subsidies at the licensee level is an impost, Johnson explains, but one that the industry needs to get used to.
“My strong view is that licensees should not be subsidised by product, whatever the business model construct is,” he says.
Advisers are increasingly reluctant to be aligned with dealer groups that accept payments from product providers, Johnson believes.
“The advisers in our networks have told me they want a licensee network that is designed not to be subsidised by product,” he says. “They understand that they’ll need to pay more and we’ve been very transparent that fees need to increase as part of that.”
‘Have to’ or ‘want to’?
The move away from FUM-style adviser remuneration in favour of annual fee-for-service pricing is another industry trend Johnson ascribes to.
After the Hayne royal commission recommended annual opt-ins for ongoing service agreements it is almost a fait accompli that regulatory reform will follow. Yet Johnson says it’s less about getting ahead of reform and more about doing the right thing.
“There’s a difference between ‘have to’ and ‘want to’”, he says. “We want to move towards the right thing in our profession, we don’t do it because someone told us to.”
He describes the typical TenFifty advice practice as being multi-adviser and charging a fee for each year of strategic advice provided. All its current and prospective practices are either using this model or transitioning to it, he explains.
“We believe [that] if you really want to demonstrate your value proposition then you have to enter into a contract for a 12-month term and then re-engage,” he says. “That really tests your service.”
Dealing with uncertainty
Johnson plays down any talk of advisers licensed under the TenFifty brand being anxious or worried about the group’s ownership.
MLC has been very publicly up for sale since May 2018, and both licensees and advisers have had to deal with a raft of organisational changes as well as regular speculation about what shape an eventual transaction may take.
Private equity giants KKR, JC Flowers and CC Capital, plus IOOF and Macquarie, are some of the potential suitors reported to have an interest in the group.
According to Johnson, advisers are used to putting the blinkers on and filtering out conjecture.
“They deal with uncertainty every day in their environment,” he says. “I think they’re smart enough to understand what they can and can’t control.”
Asked if he gets approached by advisers for updates on any change of ownership, he demurs.
“They’re not questions that hit my desk,” he replies. “None today, anyway.”
A sustainable future
Just how low TenFifty will go in terms of numbers, Johnson won’t specify. But he does say they’ve “absolutely” started seeing advisers walk already.
With such a radical turnaround in the identity of the group, he says, it’s only natural that some won’t fit the bill.
He compares the process to advisers relinquishing low fee-paying clients in order to keep their business profitable and sustainable.
“Advisers do this with their own businesses where they refine their value proposition, pricing and segmentation and they determine that they can’t serve every client,” he says. “We’re applying that same process and rigour.”
He has faith that the new model is the right one for tomorrow. Advice is on the cusp of a new era, Johnson believes, with increasing demand, reduced supply and intergenerational wealth all pointing towards a healthier, more robust industry.
“The future of financial planning in Australia over the next five years will be better than the last 20,” he says.
With FASEA exam deadline fast approaching more advisers will continue to leave the industry with few new entrants.
The question has to be asked….. What happens to all these platforms out there when suddenly there are no advisers to operate them on behalf of orphaned clients?
Well said, Jeremy.
What is the definition of a healthier, more robust Industry?
Is it much fewer advisers, providing advice to only 10 percent of the Australian population?
If so, then those 10 percent will get great advice and pay much higher fees.
A very small, elite Industry can be very profitable, though I thought all the pain and absolute chaos that the Industry has been through, was supposed to end with, as the Government continually told everyone,
more affordable advice for more Australians.
What we have today is the exact opposite and where we are heading, is towards a much smaller, elitist Industry that will exclude the remaining 90 percent of Australians who desperately need advice.
I can only hope, that in a few years, the Government, all the self-interest lobbyists and Regulators who have pushed too far, will have the decency to reflect on what they have done.