Swimming against the current

Just when much of the research was suggesting financial planners were weathering the current market meltdown in reasonably good shape, along came the news in early November that major dealer group Centric Wealth had run into funding troubles.

The problems that have confronted Centric have little to do with the viability of the financial planning industry and everything to do with business decisions taken by the Centric principals in what might now be euphemistically referred to as ‘happier times’.

In essence, with scale being one of the most desirable attributes of any dealer group, Centric was looking to grow and, like a number of its competitors in the market, an initial public offering (IPO) was clearly in prospect to not only fund future growth, but pay down accumulated debt.

However, 2008 has certainly emerged as the least propitious season for floating a company on the Australian Securities Exchange, so Centric was earlier this month looking to find funding from other quarters. It remains to be seen whether it will succeed.

The bottom line appears to be that while, on the available evidence, individual planning practices are still traveling quite well, it is a different story upstream. Fund managers were the first to feel the pressures generated by the markets and now, arguably, a number of dealer groups are finding themselves equally pressed.

While fund managers have simply found markets tough and mandates hard to find, for a number of dealer groups it has become a question of rapid growth, too much leverage and too little time.

The most obvious consequence of the problems confronting some of the dealer groups would appear to be further industry consolidation. There seems every likelihood that some of the larger dealer groups that are either carrying little or no debt or have strong institutional backing will be looking to take advantage of the dilemma facing some of their competitors.

From the point of view of the structure of the financial planning industry and Money Management’s annual Top 100 Dealer Group survey, it will be interesting to view current developments in six-months time and attempt to determine which dealer group models have worked well and which have not.

Ultimately, however, those dealer groups which do not survive the current market events may be victims more of timing than failed strategy. At times such as these, a combination of bad luck and substantial leverage can prove fatal.

— Mike Taylor