When it comes to adviser recruitment, both at a licensee and practice level, it pays to be picky, enforce minimum professional standards and hold out for the right cultural fit.
The brief history of financial planning in Australia is full of colourful examples of what can go horribly wrong when dealer groups become hell-bent on growth and indiscriminately welcome, if not actively pursue, all and sundry.
Today, few dealers openly talk about their recruitment targets or boast about being “Australia’s largest dealer group”, which suggests the industry has learned from the past (or at least learned to keep quiet).
Ongoing regulatory reform, including the government’s recent review of retail life insurance advice, has also forced licensees to be more diligent about who they authorise; however, there are still dealer groups climbing over each other to get advisers to join.
Generous “transition payments” and other sweeteners like subsidised dealer fees, cheap loans and buyer-of-last-resort (BOLR) arrangements are hanging around because most licensees still have aggressive recruitment targets and bonus schemes tied to growth in adviser numbers.
They’re the reason why it’s so easy for advisers to join a dealer group but hard to leave.
Dealer groups that have acquired another licensee or cut a cheque to win a new practice expect to keep that group’s loyalty and revenue for a fair amount of time.
They hold on so tight because if they don’t, they’ve effectively bought and helped build a worthless asset (to them).
BOLR is designed to entice advisers to sell in-house product and lock them in indefinitely.
Isn’t it ironic
Logically, it should be hard for advisers to join a new licensee or practice, and easy for them to leave.
Licensees should perform extensive due diligence to ensure they recruit only quality advisers and in doing so, protect themselves and their existing advisers. They should review every aspect of the way a practice is run and advice is provided, and ensure the right cultural fit.
Similarly, advisers should conduct extensive due diligence on prospective licensees.
Too many advisers hastily accept an invitation to join a licensee and ask questions later.
However, they should spend time reviewing their corporate authorised representative (CAR) agreement, paying careful attention to the terms and conditions related to client ownership and exiting. Ideally, they should seek legal advice, especially if a contract is full of jargon.
Advisers should only entertain licensees with a quality, professional advice and compliance framework, and the ability to support advisers. They should be free to take their clients with them unencumbered if they decide to leave.
Terms and conditions aside, cultural fit is also important.
Licensees should be focused on helping practices grow, not growing advice practices. When it comes to matters like objective, client-centred advice; managing potential conflicts of interest; professional standards; continuous training and development; ethics; and mutual respect and sharing, there has to be a meeting of the minds.
Finding the right cultural fit is a critical part of recruiting because it maximises the probability of a long and fruitful relationship.
If it’s not a good match, it’s only a matter of time before advisers will agitate to leave, which can be a lengthy and disruptive exercise.
There are a couple of licensees known for dragging dissenting advisers through the courts but most are just unhelpful or slow when it comes to helping advisers exit.
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Red flags
Advisers should be wary of licensees who are willing to accept them without conducting thorough due diligence because it provides a powerful insight into their recruitment strategy, the low value they place on cultural fit and the calibre of advisers in their group.
Licensees who invest time and resources into recruiting only the right advisers, and waste zero energy trying to stop or delay advisers from leaving, are the future of financial advice.
At the end of the day, unhappy advisers should be given the royal treatment when they want to leave. The red carpet should be rolled out and they should be rushed out the door.
