Advice comes at a cost to dealer groups

Brett Himbury

Financial advisers pose a considerable cost to their dealer groups, with the average revenue they generate equating to a $5,000 cost per advisory business, according to research from Dealers Group Advisers.

The study, conducted in July and August this year among a field of around 30 dealer groups, found that total dealer costs per adviser ranged from $18,000 to $88,000, with $43,000 the average.

Adviser payments to dealers ranged from $16,000 to $45,000, with an average of $26,000.

The total revenue for dealers, including advisers and other sources, was on average $38,000, giving an overall loss of $5,000 per adviser.

“They hardly sound like profitable businesses”, said Dealers Group Advisers managing director Andrew Wheeler, but he emphasised that these are averages, with some paying less and others considerably more than the average.

Wheeler said financial planning firms in the past looked to counterweight these costs by charging fund managers to place their products on the dealer group’s platform.

But with massive competition in this space leading to a potential glut of platforms, opportunities like this may be drying up, leading Wheeler and others to question what will be the next source of revenue.

According to Asteron chief executive, corporate and distribution, Brett Himbury, the imperative for dealer groups to make a profit has never been greater.

“That [emphasis on being profitable] is increasing in recent times for a couple of reasons,” he said.

Firstly, he thinks dealer groups have an obligation to provide training, systems, services and products in addition to supporting their advisers and clients.

“If you don’t make money out of your core business as a dealership, then you don’t have money to invest, and that arguably means you won’t improve the quality of the services to the end client,” Himbury explained.

He said planners have been compelled to add value in other parts of the advice process to avoid the perception of product bias, “and increasingly they are being scrutinised, and rightly so, to make money for the client”.

“It all comes down to your people. Whether you’re small, medium or large, in order to offer clients terrific advice on an ongoing basis the business needs good quality people, and you therefore need to have advisers in the business that have a shared interest in the brand and equity in the business.”