Unlike the quick exit of the big four banks, the slower departure of AMP and Insignia Financial from financial advice was reflective of both institution’s deep history in the industry.
The banks departed the sector after the Hayne royal commission delivered a scathing review of the country’s largest financial institutions, highlighting a sales-driven culture that focused on profits above all else.
AMP and Insignia remained in advice and spent the years following the royal commission in rebuild mode to turn their respective advice networks into properly professionalised service providers that fit in with the new era of financial advice.
But that strategy began to shift when Insignia announced in the middle of last year it would divest its self-employed adviser networks, spinning them off into what was later named Rhombus Advisory.
Just over a year later, Entireti (the new parent company overseeing Fortnum) acquired AMP’s advice licensees, which will be spun out in a new entity currently dubbed NewCo.
Speaking on the Professional Planner Shape of Advice podcast, AMP group executive for advice Matt Lawler – who will be NewCo CEO – reflected on the sector’s re-thinking of institutionally-owned licensees.
“That really started post-[Hayne] royal commission with the quick exit of the banks,” Lawler said.
“It was easy for the banks to exit because wealth and advice was a very small part of what they do, it wasn’t a long-considered issue.
“For organisations like AMP it’s harder to do that because AMP has been in advice for 175 years. In fact, AMP was started by the first adviser, Benjamin Short, who started the business selling life insurance to the wives and families of soldiers. It’s a hard decision to just up and go ‘we’re out’.”
But the move had been on cards for some time, while the licensee business was on a three-year plan to achieve breakeven.
“There are whole lot of issues three years ago post-royal commission for AMP that we had to deal with, and we had to win back the trust of the advisers, and we had to get back to the point where there was some good strategic thinking that we could do to make a move in this space,” Lawler said.
“For us, it’s been three years in the making. It’s been a process that we involve the advisers, particularly the practice principals along the way. That’s 300 practice principals that we’ve engaged in this process.”
Lawler said it made sense for AMP that the next evolution of the business was to be outside of an institution.
“It’s a natural next evolution as these businesses become fiduciary, they’re standalone, they need to be separated by the product provider,” Lawler said.
“Clients want that, it’s good for clients to have the trust that it’s not connected to the product. But advisers want that as well and that’s where we landed. It’s still a big decision for AMP.”
For Insignia, Darren Whereat – now the CEO of Rhombus Advisory – said there wasn’t a particular event that drove the decision, but also a long-considered view that led to its own multi-year journey.
“For us, it’s really about this particular segment for us, primarily self-employed businesses who are quite entrepreneurial in their thinking,” Whereat said.
“As much as we had trodden the path to separate the P&L [profit and loss] of services being delivered and it had an open APL, we thought it was just time and a natural next step for the evolution of the profession, given where we were.”
Lawler said advice is still in the DNA of AMP and it still values the business.
“In no way internally does AMP feel like it’s jettisoning the business,” Lawler said.
“What it’s trying to do is set the business up for success so that it can flourish in the future.”
Lawler said advisers within the AMP network still wanted to retain that same community, but having it outside an institution meant people were more comfortable with the level of fiduciary independence.
“Even though the perception – or even though the reality is there’s open APLs and there’s no conflicted rem and all of that stuff is out of the system – the perception is still that if you’re recommending something that’s connected to a product manufacturer then somehow that mustn’t be the right advice for clients,” Lawler said.
“Separating that is actually important for the advisers and also for the clients to feel like the advice that they’re getting is trusted.”
Capital underpinnings
The sentiment is that licensees – or professional services firms – will likely have to rely on its own capital for growth with supply of capital being directed to the underlying practices.
This was clearly the case in the AMP deal – a 70 per cent holding in the AMP licensees was bought for $7 million in cash while equity stakes in 16 advice practices were bought by AZ NGA for $82.2 million.
This fact wasn’t lost on Lawler who said capital for licensees was scarce and it’s important for them to make money as standalone businesses.
“Capital is in healthy supply when it comes to investing in the underlying practices, that’s a great sign for all advice practices out there,” Lawler said.
“We’re seeing capital come in from overseas – Europe and the US – to invest in financial planning practices in Australia. That gives you an indication about where the health in is in the marketplace and where the growth is coming from.”
AZ NGA, led by founder Paul Barrett and backed by Italian-based Azimut Group, is also part of the new proposition for AMP licensees now housed under Entireti.
“There’s a large demand, probably more than AMP had the appetite to meet,” Lawler said.
Rhombus will reinvest all dividends over the next three years back into the licensee business.
“There’s a few choices the board will make over the next three years but inside institutions it’s fair to say breakeven was an aspiration,” Whereat said.
“As a standalone entity, you’re looking to make sure you’re delivering healthy and growing profits, and others have shown you can do that.”
Whereat said it’s important for the new business to have diversified revenue streams while protecting the license.
“We won’t refer to ourselves as a licensee business, we think we’re professional services partners,” Whereat said.
“That means we’re bringing more and multiple solutions for the adviser to choose whether they engage with us, whether that’s suppliers – us using scale to get good outcomes from suppliers – or cutting-edge solutions around either technology or estate planning or cash flow management or anything connected with these businesses. Everything is on the table.”
Crystal ball gazing
The last decade for advice has seen the post-FOFA transition from a sales-driven, commission-based culture driving the industry to one that is on the cusp of being recognised as a fully-fledged profession.
Whereat says the advisers remaining in the industry are professionals who act as fiduciaries for clients. He says they’ve done or are doing the hard work to meet higher qualification requirements, and they adhere to higher professional standards.
“I would like to see that continue to evolve and obviously you’d want to see the numbers far, far higher in 10 years’ time,” he said.
“One of the challenges for us is how do you do get people wanting to be people financial planners as a career?”
Whereat expects over the decade there will be a delineation between independent advisers who engage directly from the client, and advisers offering “a different type of service” who are paid out of a relationship with a product manufacturer, alluding to the future so-called “qualified advisers”.
“You’d like to think both of those things are co-existing and again, I’m a bit of an optimist…if both of those are working side by side in the interest of the client then there will be a healthy additional layer of capacity that will be delivered out to what will be greater demand,” Whereat said.
“I’d like to see everybody access advice now. That could start with cashflow, engagement with super, picking the right investment option right through to structing, making sure you have the right insurances.”
Lawler said the profession has a “great opportunity” for to show its value over the next decade because of the millions of Australians due to retire.
“There’s a demographic bubble that’s coming that we can all play an important role in,” Lawler said.
“That’s going to really evolve us as that trusted adviser within the marketplace, but we’ve got to take that responsibility, we’ve got to think that’s really important to uphold.”
