Dealer groups reconsider their strategies ahead of FOFA

As dealer groups prepare for the new regulatory environment, Benjamin Levy explains the story behind the results of the Top 100 Dealer Groups Survey.

As the time nears for the Future of Financial Advice (FOFA) reforms to be introduced, the different strategies that the large dealer groups are implementing to deal with the new environment are being reflected in their adviser numbers.

According to Money Management’s Top 100 Dealer Groups statistics that have been compiled by DEXX&R, the numbers of advisers licensed under the large dealer groups have varied widely over the last 12 months.

Of the top 10 dealer groups, AMP Financial Planning (AMPFP), Commonwealth Financial Planning (CFP), NAB Financial Planning and Garvan have increased their numbers by 20 or more. AMPFP and CFP have grown by more than 50 advisers each as they prepare themselves for a jump in financial advice demand after FOFA.

Dealer groups like Professional Investment Services (PIS), Count Financial and Securitor have taken the opposite approach. Quality, not quantity, is the watchword for them – and PIS and Count have dropped large numbers of advisers as a result.

However, Millenium3, RBS Morgans, and Charter Financial Planning have remained steady during the last year, with new hires or losses within single digit figures.

Growing in strength

AMPFP and CFP are two of the fastest growing dealer groups according to size this year. AMPFP added 56 financial planners on to its payroll since last year, retaining the number one spot in adviser numbers that it snatched from PIS last year.

AMP director of financial planning, advice and services Steve Helmich says there is a major undersupply of advisers in the market, and there is no limit to the number of financial planners AMP can employ.

“We need to help Australians secure their financial future, so to do that we need to have more financial planners giving more great advice,” Helmich says.

Most of the credit for the increase in AMP advisers is due to the Horizons Academy. Nearly 500 applications are made to the Academy, but only 32 people are chosen to enter.

“That selection process in itself is one of the reasons we have a higher retention rate of recruits than some of our competitors,” Helmich says.

There are also a number of independent financial planners and licensees that are attracted to AMP’s value proposition, according to Helmich.

While that has also contributed to the increase in advisers, it may level out over the coming months.

FOFA is an opportunity for AMP, not a challenge, according to Helmich.

“Some of the issues that are continually raised around FOFA will fade away. Where there is value [in advice], opt-in and fiduciary duties are built in anyway, because people are willing to pay for good service and good support,” he says.

Recruiting advisers to provide expert advice for more consumers leads to more references for new clients, which in turn drives even more recruitment, Helmich says.

“It’s a really virtuous circle,” he adds.

CFP, which came third in terms of fastest growing dealer groups and also added the most advisers among the top 10 dealers, grew by 84 financial planners last year. 

Approximately 48 advisers included in that number are part of CFP’s Pathways program, which has been segregated from the CFP business in previous years due to its fledgling structure. 

The rest of the growth in adviser numbers comes from CFP’s graduate program, which they are using to get an edge over other dealer groups that are struggling to find the next wave of talent, according to CFP general manager Neil Younger.

Last year CFP increased the number of graduates it accepts through the program to 35.

Graduates are placed into paraplanning as well as servicing planner roles under a mentorship program with CFP’s senior planners and planning managers. They aim to move them into branch planning roles in the future.

The amount of training and investment CFP puts into their new planners ensures that retention rates for their planners are among the highest in the industry, Younger says.

“Of our recruiting intake for the year, maybe 60 to 70 per cent are coming from someone else making a decision about changing their career,” he says.

The number of advisers coming in from independent dealer groups is also increasing, leading to a small portion of the gains CFP has seen in its adviser numbers this year.

Doing more with less

Some dealer groups are going in the opposite direction and are doing more with less. Two of the top 10 dealer groups lost large numbers of financial advisers this year. 

PIS, despite losing 127 advisers from its ranks over the last 12 months, has managed to maintain its number two spot in terms of total adviser numbers, thanks to the large number of advisers it has licensed. It faced the largest losses in terms of financial advisers in the past 12 months.

Although PIS has nearly 300 more planners than third-ranked Millenium3, this is the second year in a row that the total number of advisers has dropped. Approximately 300 left the group between 2009 and 2010 as PIS weeded out advisers who weren’t paying their way or weren’t serious about improving education standards in the dealer group. While PIS was also hiring planners during that period, if the trend continues it is likely they will drop to third place within three years. PIS currently has 1,227 authorised planners.

Count Financial has also been weeding out advisers over the last 12 months. While the group only lost 18 advisers in total between 2009 and 2010, that number has surged over the last year, with 112 advisers saying goodbye to the dealer group in 2010-2011.

Count managing director and chief executive Andrew Gale said Count didn’t regard absolute numbers of advisers as a meaningful indication of the performance of the dealer group.

“Our focus is on active, productive and high quality practices and advisers – and that’s more important than absolute adviser numbers,” Gale says.

Much of the loss of financial planners is because of redundancies. Count is focused on building the size of its financial planning practices through tuck-ins. 

“Sometimes you get consolidation of adviser numbers as part of that tuck-in activity,” Gale says. 

Count Financial is also raising the minimum level of advice their representatives need to be involved in for the financial advice they offer to be economical for the adviser or dealer group. It has led to members who are straddling both financial planning and accounting abandoning the financial advice aspect of their work, causing a decrease in the number of Count’s financial planners overall.

However, Gale is adamant that Count has lost very few advisers to other licensees over the last year. 

Despite the losses in numbers, Count has spent some time modernising and upgrading its financial advice and platform technology and is preparing to launch a recruitment drive for financial planners off the back of that.

“We wanted to be strengthening our planning technology and platforms before we embarked on significant recruitment,” Gale says.

Count will be searching for other accountancy-based planning practices to recruit to the group, he adds.

Mid-tier players suffering

The record is mixed among the mid-tier and small dealer groups over the last 12 months, with some doubling in size, while others have shrunk by almost half.

Sentry Financial Group and Aon Hewitt Financial Advice advisers have more than doubled over the last 12 months. Sentry added 202 advisers to boost its numbers to 379 planners, while Aon Hewitt came close behind with 179 planners hired, leaving it with 335. Other smaller players moved more sedately, ANZ owned RI Advice Group adding 68 planners, while Synchron grew by 32.

ClearView, Garvan Financial Planning, and Shadforth also hired more planners, adding 29, 27, and 19 respectively.

Other dealer groups have not fared so well. AAA Financial Intelligence, a mid-size dealer group with 213 advisers, was hit hard in the last 12 months, with 83 advisers leaving the dealer group.

Other mid size-dealer groups, such as Genesys Wealth, Hillross Financial Services, Securitor and Macquarie Equities all recorded drops in advisers of 56, 34, 27 and 26 respectively.

Some of the smaller dealer groups have suffered along with them. Chifley Financial Services lost 44 advisers during the last 12 months. FuturePlus Financial Services also lost 44, leaving it with 17 planners, and Bongiorno Financial Advisers has been left with only three advisers after losing 31 planners over the last year.