Co-operatives: the financial planning communes

One of the side issues arising from the Top 100 survey is the emergence of the fi-nancial planning co-operative.

Financial planning co-operatives are a group of smaller-sized dealer groups banded together to form an entity, usually a master trust

One of the side issues arising from the Top 100 survey is the emergence of the fi-nancial planning co-operative.

Financial planning co-operatives are a group of smaller-sized dealer groups banded together to form an entity, usually a master trust. These dealer groups buy an eq-uity stake in the entity, which increases the value of the dealerships (usually small financial planning firms).

Co-operatives haven’t made the Top 100 list, as they don’t hold a single dealership together, but are instead a loosely tied group of autonomous dealer principals. There is nothing stopping a dealer from belonging to more than one co-operative. In fact, KPI Research’s Leo Wassercug says one small dealer group he surveyed belonged to several.

There are three co-operatives in the industry at the moment — AustChoice, Fidu-cion and Consolidated Financial Services (CFS).

Both Fiducion and CFS did not give final numbers to KPI Research, but it is un-derstood Fiducion has 65 planners in the group (with 6 dealers) and CFS has 19 dealer group members.

AustChoice is a co-operative of 45 dealer shareholders and 300 authorised repre-sentatives, making it the largest of the groups. Managing director of AustChoice Financial Services Roger Gumley says the co-operative has been running for more than a year now. It is 80 per cent owned by its adviser shareholders and 20 per cent owned by AustSelect, AustChoice’s holding company. 90 per cent of revenue goes to the 80 per cent adviser shareholders, in the form of reinvested dividends and re-bates for planners for distribution and marketing costs.

Gumley says the co-op structure is attractive to smaller dealer groups because it in-creases the value of their businesses. “There have been so many instances where the ‘minders’ have enjoyed the equity spoil of the advisers’ business.”

For examples, he cites the recent $2.1 billion sale of BT Funds Management to Precedent Financial Group and the $272 million sale of Sealcorp to St George. Gumley says, in both cases, advisers built up a significant part of the wealth of the business.

“Advisers can get two or three times their annual earnings for the sale of their business, if they’re lucky, though it’s probably more one to two times annual earnings,” he says.

With an equity stake in a co-op, Gumley says advisers can receive “double digit multiple earnings” for their business, setting them up for their retirement and helping their succession planning process. It’s all part of taking a share of the prof-its “away from the minders and back to the finders” he says.

“Distribution is king. I would suspect there’s an oversupply of product and advis-ers should be preparing themselves with appropriate exit strategies and succession plans. There is a disproportionate equity value in the industry.”

But it’s not only in the added worth of the planner’s business that co-operatives give planners an advantage. “By banding together as a co-op, groups…may gain cheaper access wholesale rates to products,” Gumley says.