The price of a financial planning principal's allegiance
Is any sensible financial planning principal capable of resisting the offer of up to $1 million to change dealer groups and/or corporate allegiance?
On the basis of the available evidence, the answer to that question has been "no" for a number of principals whose businesses previously formed part of Count Financial, but in future will be a part of the BT financial planning network.
Quite simply, BT Magnitude has sought to extend its planning footprint by taking advantage of the Commonwealth Bank's acquisition of Count Financial.
AMP Limited experienced a similar phenomenon when it acquired AXA Asia-Pacific. On that occasion, MLC assumed the role of predator in seeking to attract AXA aligned planners to its fold.
In both instances, the acquiring companies – AMP and the Commonwealth Bank – sought to retain planner numbers via so-called "retention payments", while MLC and BT Magnitude were accused of offering lucrative "sign-on fees".
Where the luring of Count Financial practices is concerned, BT Magnitude Financial managing director, Phil Butterworth, dislikes the term "sign-on" fee and prefers to describe such transactions as "transition payments" reflecting the cost of the practices actually moving or transitioning to BT.
But whatever Butterworth or any of his industry peers may choose to call such payments, they represent significant windfalls for those on the receiving end.
The problem, of course, is that it is only the major institutions such as the banks or AMP which can afford to offer such inducements – something which has given rise to suggestions that such payments will create further vertical consolidation, therefore reducing the number and growth prospects of smaller, more independent groups.
The degree to which this has actually occurred over the past 18 months will be closely examined when Money Management publishes its Top 100 Dealer Groups study in late July 2012, but what is already obvious is that it is the institutions which have grown their presence in the advisory market, while the future of a number of medium-sized players remains in question.
The challenges confronting the medium-sized players became evident in the manner in which Australian Financial Services Group chief executive Peter Daly parted company with the dealer group, the changes which have been wrought within Professional Investment Services and the time it has taken for Matrix to take the next step.
At the core of the strategies pursued by all the groups has been the dual issues of scale and distribution combined with the realities which have been generated by the Future of Financial Advice changes – not least, the expected rules around the delivery of scaled advice.
The good news for financial planners is that the major institutions clearly continue to place a high price on financial planning practices.
The bad news is that the level of vertical integration appears to be taking the industry back to the situation which existed nearly 20 years ago.
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