As the battle to secure advisers from a shrinking base continues and licensees reach for scale and efficiency, Peter Mancell has called out large dealer groups for offering short-term discounts to entice planners across to their network.
Without naming entities, the CEO of 70-adviser licensee FYG Planners said the practice was coming out of “the big end of town” and is doing the industry a disservice on a number of levels.
Above all, he says, short term discounts are a poor way to win the trust and loyalty of advisers you want to form a true partnership with.
“At the end of the day every licensee should have an offering that’s available to every adviser in the group,” Mancell tells Professional Planner. “If they have to resort to discounting to retain them that surely that’s not a good way to win long-term loyalty.”
Not only is the practice unsustainable, Mancell continues, but building the licensee/adviser relationship on the cheapest possible price means the relationship has a fundamentally weak foundation.
“You wouldn’t go to a restaurant where you knew the food was poor just because it was half price,” he says.
The CEO reveals there are “at least a dozen” advisers FYG has spoken to recently that have opted to take discounted pricing in the short term to save money, with the intention of reconsidering towards the end of the discount period.
What can really undermine the strategy, adds FYG chief executive Andrew Wootton, is the discontent that split level pricing can cause with the existing advisers that are left paying a higher price.
“We know advisers that are paying twice what other advisers in their network are paying and I don’t think they’re happy,” Wootton says. “It’s no different than a bank offering cheaper rates to new borrowers than what existing borrowers pay.”
Mancell says he can appreciate why advisers, already beset by “huge compliance costs”, might jump at the chance to pay less for licensing – at least in the short term.
The danger, however, is that they’ll find themselves embedded in a licensee network that doesn’t share their long-term view on advice.
“A lot of advisers plan to leave but not as many do,” he says.
Mancell isn’t the first to call out the practice of offering short-term licensing discounts to advisers.
In September last year Matt Lawler (who was then CEO of Wealth Market but has now been tapped to head AMP’s advice group) criticised IOOF for offering onboarding advisers half-priced licensing for two years.
“My point is that the money – whether it comes from product or anywhere – is better spent building services and technology for advisers, rather than being a sign-on fee or a grab bag,” Lawler said in September. “It creates a culture of advisers who have their hands out.”
Nathan Jacobsen, then-chief executive at Paragem and now chief executive at Easton Investments, said the premise of heavily discounted licensing reinforced the idea that advisers can be bought and sold.
IOOF head of advice Darren Whereat contended that the discounts were pandemic-related, and the net pricing was comparable once PI insurance and Xplan costs were included.
This week IOOF completed its acquisition of the MLC network from NAB, with the 406 MLC advisers that opted to join IOOF representing 84 per cent of the group’s “target set”.
Separately, during the heat of the pandemic in March 2020, then-chief of MLC Geoff Lloyd announced licensing fees would be waived for three months with trailing discounts for another three.
AZ NGA CEO Paul Barrett noted in the comments section of the story that discounts of this nature are only feasible for the big end of town.
“Some of the less-capitalised firms out there will be doing it tough and won’t be able to squeeze price like the verticals can,” Barrett said before adding: “This measure is a short-term product subsidy that is not available to most licensees.”