Co-operative spirit alive at AFS

Co-operative style financial planning businesses have copped a lot of flak over the past year after a high profile failure in one venture at the end of 1999. John Wilkinson spoke with one group who have built a robust business based on the co-operative structure — Australian Financial Services.

Ever since Sealcorp was sold and advisers felt they had missed out on a slice of the proceeds, there has been a spate of new dealer groups offering equity for advisers.

Some of the new-style dealer groups have not even got off the ground and it is too early to see the success of others. One of these new-style dealer groups is Australian Financial Services (AFS) which actually pre-dates the Sealcorp watershed.

AFS came into being in March, 1997 as a co-operative of advisers. Each adviser had a shareholding and Zurich took a majority shareholding to get the enterprise up and running.

The idea of a co-operative dealer group stemmed from two disparate groups of planners and life advisers.

AFS managing director Geoff Moore says it made sense for both camps to join together to form a dealer and broker group that had expertise across the board.

"Our philosophy is a co-operative culture, so it made sense to bring the two groups together," he says.

Initially there were 20 advisers. To become operational faster, AFS purchased the dealer group licence of McMillan Shakespeare.

The board of AFS reflects the co-operative nature of the company. Zurich has two seats and the advisers five. The shareholders elect adviser board positions and there is an independent chairman who has no connection to the advisers.

The advisers operate as independent units and are not obliged to use any particular products - and that includes Zurich. AFS has also recently set up its own master trust -Strategy master trust.

Moore says dealers who use Strategy will gain equity in the product. But while a number of AFS advisers are using the group's master trust, some are sticking to using other products.

The co-operative structure of AFS and the adviser independence is a selling point when attracting new advisers, Moore says. Another attraction of AFS, he says, is the flat fee structure.

"The fee structure is based on user pays," Moore says. "It is based on a flat fee that rewards top-quality advisers while the adviser keeps its brokerage or client fees."

The fees are not based on income. An adviser producing $250,000 of revenue uses the same resources as one producing $500,000 of revenue.

However, Moore admits AFS isn't really interested in an adviser that produces less than $250,000 of revenue unless it could prove that sustained internal growth could achieve that figure.

The services AFS provides range from compliance to national fleet discounts on popular cars.

"AFS is a facilitator that provides support services to the adviser while they retain their independence," Moore says.

Initially, the company outsourced a lot of these services to gain efficiencies, but in recent months a number of these functions have been bought back in-house. The in-house services now include compliance and the appointment of a business manager to help advisers run their businesses more efficiently.

"Zurich helped us with some support with business management, but we now see offering this service with a dedicated manager as a point of difference," Moore says.

"We can help the adviser focus on building the practice. AFS plans to appoint a second business manager shortly."

The business development program is also aimed at the younger advisers - helping them eventually become a principal by taking over a retiring principal's practice.

The aim is also to make sure all advisers have a full understanding of the AFS culture, Moore says. Currently the company is working on an induction program that will last about six weeks for advisers joining the group.

"We want to see how people run their business, what support staff they have and their technical competencies in areas like IT," Moore says.

"AFS is not keen to take someone who only just meets education levels and are not prepared to work toward reaching CFP status."

The qualification entry level for joining AFS is that the senior people in the practice must be trained to CFP level or working towards it.

"We take a holistic approach to advisers wanting to join us. To date, most principals have come to us on recommendation," Moore says. "We want a business that will grow with AFS. The company is not built on a structure that is simply about paying high dividends to its principals."

The company runs three professional development seminars a year and an adviser conference. This accounts for about half of the professional development training required and Moore says advisers get the rest from events such as fund manager briefings.

Compliance is now run in-house. When an adviser joins AFS, the first half a dozen plans are checked. If a problem is discovered, training is then undertaken to fix the lapse.

During a normal year, the advisers are subject to two full compliance checks and all advisers are subject to random client file requests by an AFS compliance officer.

This year will be AFS' fourth year of operation and Moore says the company is still developing.

"Last year I reviewed where AFS was heading based on our original five-year strategic plan," he says. "We have now adapted that five-year plan to the current adviser market and produced new goals for our expansion."

Part of this change has been to concentrate on providing principals with help to run the day-to-day side of their businesses. The two business managers are a move to meet this part of the strategic plan.

Growth of the group will come from advisers being referred to the organisation. Moore says he doesn't want to grow the number of advisers simply for the sake of it.

However, he has set a target of doubling the number of adviser principals that AFS has in the next five years.

"Principals must come from referrals and both sides must be happy working with each other," Moore says. "Obtaining referrals will be part of the business manager's role."

Vital statistics: Australian Financial Services

Advisers:107

Funds under administration:$1.2 billion

Ownership:45% Advisers

55% Zurich

Founded:1997

Key figures:Barry Stephen, Chairman,

Geoff Moore, managing director

Master trust:Strategy Retirement Fund, ASGAARD, Navigator and Flexiplan

Research:Investment - ASSIRT, Morningstar and van Eyck

Insurance: Proplanner

Next conference:Christchurch