Is it the end of the dealer group as we know it?
Mike Taylor asks whether the formation of BT Select and the continuing competition between BT and Count Financial reflect the end of the current dealer group model.
When the formation of BT Select by Westpac's BT Financial Group is taken together with other recent developments in the financial planning sector, it may well spell the end of the dealer group model which has carried the industry through the past decade and a half.
While the Government's Future of Financial Advice (FOFA) changes may be deemed the primary catalyst for the change, other factors have also been in play which have been evidenced in changes at the top of groups such as Professional Investment Services, the ongoing sale process around Matrix, and the decision by IOOF to take control of DKN Financial Group and Lonsdale.
The commercial realities driving most of the recent transactions in financial planning are being generated by the level of investment the major players have directed towards their platforms.
Thus, the two key words in the evolving new world of Australian financial planning are "scale" and "distribution".
But what the formation of BT Select should signal to the financial planning industry is that in the minds of the strategists within Westpac, the old dealer group model has become redundant – and the opportunity exists to develop a new construct which obviates the need for volume rebates.
This was made clear by BT Select managing director Phil Butterworth, when he outlined the business model which he claims is based as much on service delivery and commercial transparency as it is on platform flows.
According to Butterworth, BT Select is "licence agnostic", which essentially means that planning groups joining BT Select can operate under their own licence or under the umbrella of one of the licences held by BT Select groups such as Magnitude.
Equally, he said that groups joining BT Select could select from its suite of services and only pay for those they actually used.
The caveat to this, of course, is that BT Select will not be in the business of entering into agreements with planning firms unwilling to use a reasonable number of the services it has on offer.
Having previously been chief executive at dealer group DKN, Butterworth has an intimate knowledge of the dealer group model which has been common to the Australian market for the past decade or so, and he makes no secret of the fact that his decision to move to BT was influenced by the possibilities of helping to move beyond that model.
Thus he makes very clear that BT Select is not a dealer group but, rather, a service provider offering a business-to-business proposition leveraging off substantial scale, and offering what he believes is a compelling service proposition.
The strategy behind BT Select envisages the business growing to accommodate 120 "like-minded professional practices" over the next three years, but Butterworth insists this target is not set in concrete.
"It could be 80, it could be 100," he said. The underlying criterion was the formation of an appropriate community.
Butterworth did not seek to deny the link between growing BT Select and growing inflows into the BT and Westpac platforms, but he suggested reports that BT had paid large sums to attract planners to the group, particularly Count Financial planners, were overblown.
According to Butterworth, BT has managed to attract 10 Count Financial practices, and the chief executive of Count, David Lane, does not disagree with that figure.
While acknowledging that he had last week written a letter to Securitor advisers offering them the opportunity to move across to Count, Lane's explanation of what Count had to offer seemed not that different to the underlying proposition being put forth by BT Select.
"…We provide our advisers with a suite of services," his letter said.
"Importantly, we believe in an open architecture Approved Product List (APL), with BT remaining as a core product of our multiple platform solution. You will note that we have recently announced a price reduction to our badged BT platform."
What Lane might have also mentioned in his letter, and something about which Securitor planners are probably already acutely aware, is that the Commonwealth Bank has already provided an extensive suite of services utilising the bank's scale and reach.
Lane earlier this year told Money Management Count would be providing the authorised representatives and the owners of its member companies with "the exact same suite of services that you would get if you were a CBA employee".
"So things like 70 basis points off your home loan, like a 20 per cent reduction on general insurance," he said.
"They are things that as a CBA employee I know I use and I know that all my colleagues use,” Lane said.
Sitting behind both the BT Select and Count Financial offerings to planners is the bulk of two of this nation's largest banking institutions – Westpac and the Commonwealth Bank. Integral to both offerings is the need for inflows into the platforms established by those banks.
And while Westpac and the Commonwealth Bank are slugging it out to grow their scale and distribution, no one should imagine either the National Australia Bank or the ANZ is standing idly on the sidelines.
The question for the Australian financial planning industry is how much room will be left for the smaller players, and what models will ensure those smaller players survive and prosper.
Recommended for you
Join us for a special episode of Relative Return Unplugged as hosts Maja Garaca Djurdjevic and Keith Ford are joined by shadow financial services minister Luke Howarth to discuss the Coalition’s goals for financial advice.
In this special episode of Relative Return Unplugged, we are sharing a discussion between Momentum Media’s Steve Kuper, Major General (Ret’d) Marcus Thompson and AMP chief economist Shane Oliver on the latest economic data and what it means for Australia’s economy and national security.
In this episode of Relative Return Unplugged, co-hosts Maja Garaca Djurdjevic and Keith Ford break down some of the legislation that passed during the government’s last-minute guillotine motion, including the measures to restructure the Reserve Bank into a two-board system.
In this episode of Relative Return Unplugged, co-hosts Maja Garaca Djurdjevic and Keith Ford are joined by Money Management editor Laura Dew to dissect some of the submissions that industry stakeholders have made to the Senate’s Dixon Advisory inquiry.
