Travelling as a solo dealer

Last year’sMoney Management Top 100survey revealed that of the largest dealer groups that make up that number, 40 were independently owned. Nicole Szollos spoke with some of these groups to discover why they chose the path of independent ownership and the benefits this brings.

Control, focus, freedom, philosophies. These are some of the central themes linked to the operation of an independently owned financial planning company. Out of last year's Top 100 dealer groups 40 firms had independent ownership where the majority shareholders (80 per cent or more) are outside institutions.

Independently owned dealer groups can be formed with several different structures which are represented within the 40 groups.

Ranging from fully owned by advisers to 100 per cent director owned, a number have ownership made up of a mixture of directors, advisers and staff. Nine of the 40 groups are privately owned and three listed on the Australian Stock Exchange (ASX) last year.

But what all the groups have in common is they have turned their backs on institutional involvement, instead preserving the attributes of independent ownership.

And in choosing this ownership structure the groups have experienced certain benefits, but also uncovered a few drawbacks to being independently owned and operated.

Berkley group managing director Glen Castensen sums up the strength of having ownership independence as retaining the groups core values and philosophies.

"The key thing is maintaining focus and controlling your own destiny," he says.

Berkley financial planning division was established one year ago and has since grown by $350 million funds under management to a total of $1.3 billion.

The majority shareholders of the group are advisers and staff controlling 80 per cent, and the remaining 20 per cent is held by Financial Services Partners (FSP), a holding group for a number of institutions.

Castensen believes there are many benefits to being independently owned and foremost is having a clear financial planning focus, and the ability to make decisions according to the best interests of advisers and clients.

The independent ownership structure is well suited to Berkley's management approach with its focus on the client. Feedback is gathered from advisers and clients to ensure they are being provided with what they need.

"The group manages key objectives from a bottom up focus, we sit on the same level as the clients," Castensen says.

Part of providing the best service to clients is providing the best products on the market. By being independent Berkley has the freedom to research and offer any product they choose to, and are not tied into having a particular institution's product on their recommended list.

Looking at drawbacks, Castensen says these are minimal but not having the resources of larger groups is the most evident. He remains solidly on the path of independence however, and believes less resources is an issue that can be overcome. In general conceptual issues may also create disadvantages with the idea that big equals better, but Castensen says Berkley has not suffered this way.

The group has plans in place for future expansion and has sufficient capital to develop projects such as an administration service and inhouse funds management.

Although Berkley has received interest from outside institutions and the FSP group wishing to increase holdings to 50 per cent, Castensen says its future lies with majority independent shareholders and the client focus approach.

"We will always look from the bottom up at the clients relationship with the adviser, looking at what they need and creating it if possible and if not then making strategic alliances to provide it," Castensen says.

Another group staking its claim as an independent is Chapel Road, a privately owned financial planning group in its fifth year of operation. The shareholder structure consists of about nine shareholders, either directors or advisers.

Jim Gellett is the chairman of Chapel Road, and one of the founding directors as well as a major shareholder in the group. His view of the benefits of being independently owned is simple, "We can determine our own future."

Freedom of choice on deciding which products to offer is also a benefit for Gellett who says not being leaned on by a fund manager to promote their products means Chapel Road can research for the best products to put on its recommended list.

He also believes there is greater opportunity for advisers in an independently owned smaller group, as they are likely to get diverse experiences across the range of investment areas.

As for disadvantages to being independently owned, not having large sources of cash for development is again the top issue but, like Castensen, Gellett remains positive.

"We don't have a bottomless bucket but this can also be seen as a good thing because we run a tight ship," he says.

There will be no major changes to the structure of Chapel Road's shareholder ownership, except for new individuals as the group recently issued additional share options to its proper authority holders. The share options can be taken up in the next three years.

Stockbroking and financial planning group D&D Tolhurst have taken the route of director and staff ownership. The group is 95 per cent owned by directors and five per cent owned by staff which has defined a clear culture in the group according to deputy managing director Russell McKimm.

He says it is the freedom to do your own thing that is the biggest plus, including the choice of products and not having to support any funds manager.

McKimm says the group uses a wider range of fund managers than most and more than one master trust because there are different benefits to different products.

He says the group's value principles also lead to a follow on benefit of attracting like-minded advisers with similar principles, who strengthen the atmosphere.

The decision making process of an independently owned group is another positive difference for McKimm. He is enthusiastic about how decisions are made quickly without having to go through the process of approval institutionally owned groups can have. The element of perception from advisers and clients that there are not the restrictions of other groups has also been a benefit

McKimm says the groups focus for the future is to continue to provide its stockbroking service and advice to investors across a broad spectrum as a privately owned group.

He says on the stockbroking side and corporate deals the group is restricted with what it can take on, and must be thorough in determining the limits with the catch to an independent ownership structure once again being the presence of capital.

"It's a real tradeoff, you don't have the big balance sheets that the big brothers give you," McKimm says.

Stockford joined the ranks of independent ownership last year when it was one of three financial services groups to list on the ASX.

Chief executive officer Jim Phillipson says a breakdown of the groups shareholding structure is about 70 per cent management and employee owned and 30 per cent held by retail and institutional investors. While the types of shareholders can not be controlled once a group publicly lists, Phillipson says Stockford has a strong employee share plan with 100 per cent of employees eligible for shares, and 100 per cent holding shares, plus additional options for management.

"We aim to preserve the balance of shareholders, and the institutions involved are quality institutions so as not to compromise the groups' independent ownership," he says.

For Phillipson, having independence means giving unbiased client advice.

"There is no way you can hold yourself out as giving unbiased advice if controlled by an institution," he says.

As well as having a totally independent product list, Stockford has independence when choosing suppliers of tools and services such as software and marketing.

"We can use the best quality suppliers without any compromise," he says.

As for the drawbacks for this independently operated group, Phillipson says it is the need to create all the resources yourself with no big brother to lean on. But he adds this is not a major concern given Stockford's size and expected growth.

"With $2.25 billion in funds under advice, Stockford is big enough now to be its own big brother," he says.

Top 10 Independent dealer groups

Name No of FPs shareholder structure No of clients(000) Funds under Admin ($mill)

Count Financial Group 949 Listed 130 5,000

Professional Investment Services 408 100% directors and advisers 62 2,600

Lifespan 191 100% directors 10 700

Associated Planners 175 80% advisers, 20% Zurich 25 3,000

Mawsons 140 100% directors and advisers dk dk

Morgans Financial Planning 110 100% directors and staff dk 80

Harts Securities 102 listed dk 800

Bongiorno Financial Advisers 63 privately owned 16 950

Stockford 60 listed 2 40

Personal Investment Planners 50 100% directors and advisers nd nd

Source: Money Management Top 100. Nd- not disclosed, Dk - did not know.