Planners too must act in own best interests
Mike Taylor explains the writing was on the wall long before the announcement of a number of practices leaving the AFS Group.
News earlier this month that a significant number of key planning practices had left dealer group Australian Financial Services (AFS) – therefore undermining plans for it to be acquired in a line – seemed to surprise no one.
The future of the AFS Group had, in fact, been the subject of industry gossip even before its board decided to part company with former chief executive and managing director, Peter Daly. The moment the board then decided to refer the future of the organisation to a strategic review, the writing was effectively on the wall.
Aware that the ownership structure of the AFS Group mostly lay in the hands of the principals of its most important planning practices, the major institutions and other dealer groups sensed the scale of the company’s weakness and began the ritual of seeking to lure away those practices.
By the time AFS had, in early February, received the findings of the strategic review conducted by Seaview Consulting, the fate of the dealer group had already been substantially sealed, because enough of the key planning practices had decided to accept lucrative offers to move to other arrangements – at least eight to ANZ, a number to BT and some to Queensland group InFocus.
No one is openly discussing the terms on which the planning practices moved from AFS to their new homes, but a precedent seemed to be set in 2011/12 when BT and the Commonwealth Bank found themselves in a turf war after the Commonwealth Bank’s acquisition of Count Financial.
Depending upon which way the Count practices were headed, there was discussion of retention or transfer payments of in excess of $1 million.
Certainly, some of the smaller dealer groups who had sensed an opportunity to recruit disaffected Count practices found themselves totally uncompetitive.
The fate of the AFS Group, while still to be fully determined, represents a manifestation of the Future of Financial Advice (FOFA) changes and the commercial models which have been used to underpin financial planning dealer groups.
FOFA alone did not lead to fragmentation of AFS’ member planning practices, but it did act as a crystallising agent for the dealer group’s major shareholders and their expectations around whether they would ultimately see a satisfactory return on their investments.
The experience of the AFS owners is one upon which many other financial planning principals may care to reflect as they assess the benefits and deficits of “adviser-owned” dealer group models.
AFS describes itself as being “adviser owned and adviser driven”, stating that it “partners with successful, high-performance practices, by providing a proven framework for profitable, sustainable growth”.
However, being adviser owned and adviser driven means that its major shareholders – the advisers, directors and staff – still have to finance the underlying structure and service delivery of the dealer group, and this is where the situation becomes somewhat more problematic.
An AFS Group Financial Services and Credit Guide published in January last year pointed to at least some of the challenges confronting the dealer group model in a post-FOFA world when it stated:
“AFS prefers that clients be asked to pay a fee for service, or pay a charge for the amount of the funds that the advice covers. Where appropriate, AFS may receive brokerage or commission which is paid by a financial product issuer”.
Later on, the document states: “AFS may receive volume bonuses from mastertrust and wrap platform suppliers if the total of all AFS client funds invested reach a pre-determined dollar amount”.
There was, of course, nothing wrong with that particular commercial model being pursued by AFS in January, last year, but the FOFA legislation and resultant regulations published by the Australian Securities and Investments Commission (ASIC) have directly impacted its access to volume bonuses and, except with respect to insurance sold out of super, to commissions.
Then too, there is the suggestion published in Money Management last week that financial planners who are linked to smaller dealer groups are exposing themselves to more risk than those who have affiliations with larger groups.
If one thing has become clear in the aftermath of the FOFA changes, it is that bank-backed dealer groups have grown in scale while the smaller groups have done their best to find the right commercial model to deal with the new regulatory environment.
At times like these, there are always going to casualties – and no one can blame those who own individual planning firms for deciding to act in what they see as their own best interests.
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