Counting the cost of tough times

You know times are tough in the financial planning industry when publicly-listed dealer groups such as Count Financial and Australian Wealth Management report profit declines of 46 per cent and 30 per cent respectively.

If two of the strongest dealer groups in the industry, both of which are publicly listed, are clocking up sizeable profit slumps, what must the situation be for less well capitalised dealer groups, reliant on fees and commissions inflows from a more marginal client demographic?

It is always easy to be wise with hindsight, but the reality confronting planners is that a number of Australian dealer groups have been founded on strategies that rely on client momentum and inflows that can only be generated by a long bull market.

It will clearly be a long time before we see a repeat of the market conditions that existed between 2004 and 2007 and, equally clearly, the dealer group landscape is going to look very different later this year when Money Management conducts its next Top 100 Dealer Groups Survey.

When assessing the value of dealer groups, Money Management has always tended to lean towards funds under advice (FUA) rather than planner numbers as the key measure of durability. On the face of it, recent events would seem to suggest that our focus on FUA was well founded.

Recent research has confirmed that planners are now feeling the effects of the global financial crisis and that it is those planners with somewhat less experienced (and arguably less well-heeled) clients who are feeling it most. Some might say the ‘mum and dad’ investors have been frightened off and have pulled back. It follows that this situation is translating into revenue declines for dealer groups.

What is more, a number of dealer groups, particularly those that have persistently hinted at public listings, are heavily leveraged and for them the impact of diminishing fees and commissions flows is magnified.

What does this mean for financial planners? For some, it is possible the dealer group with which they have engaged might ultimately not deliver on the deal. For others, it may mean needing to find another flagship under which to serve.

The bottom line is that comments contained in the Count Financial half-year report are probably right: we are likely to see increased rationalisation of all sectors of the financial services industry. On the upside, we will likely be left with a better-founded and more robust sector.

Mike Taylor