Connecting all the dots at Matrix

The first thing associated with the word ‘matrix’ these days is probably the Hollywood sci-fi blockbuster of the same name, featuring Keanu Reeves running through walls and being mentally propelled through cyberspace.

Look it up in the dictionary, and you’ll see a matrix is also a womb-like environment for growth and development, or a mathematical grid connecting separate elements into a linked and ordered circuit.

In the financial planning arena, Matrix is also the name of a growing Australian dealer group that, true to its title, works towards fostering an environment in which its 35 member offices, or 73 individual planners, can utilise a suite of financial planning services as part of an integrated advisory network.

Now in its third year, Matrix Financial Group formed when around 20 disgruntled Prudential employees decided to leave the firm following its acquisition by Colonial First State (CFS). The planners felt they had not been rewarded for their work to build Prudential and that the sale price paid by CFS did not adequately compensate them for their efforts. Rather than continue to work for an institution over which they might not have any future influence in relation to direction and growth, some of Prudential’s financial planners decided to break away.

“The planners realised that if they could build so much wealth for an institution, there was no reason why they couldn’t build it for themselves,” Matrix managing director Allison Dummett says.

The exiting planners, under the guidance of current Matrix executive chairman Pieter Franzen, realised they needed an experienced manager to help set up the venture. They turned to Dummett who had been at Prudential for 10 years, where she worked as state manager for New South Wales and director of Prudential Fund Managers. She stayed with the firm for a year after its acquisition by CFS.

Franzen was also formerly employed by Prudential as executive director for Australian operations. He became the “visionary” for Matrix Financial Group, Dummett says, and worked with ex-Prudential planners to devise a working business model for the group.

Today’s financial planners are still concerned about where they stand in an industry that continues to consolidate into larger chunks. They worry about being excluded financially from the success they bring to their business and that mergers with other firms will result in them being swallowed up within large institutions that don’t fully understand their business.

“Advisers in organisations that are acquired by larger institutions don’t want to feel like a number. And they don’t like to have their service offering watered down either,” Dummett says.

As a result, almost all of Matrix’s 35 offices joined from the institutional side of the industry, with just two joining from boutique dealerships.

In order to override concerns facing financial planners in a consolidating market environment, Matrix ties participating financial advisers to the overall success of the company by giving them each an equity stake, which is collectively worth 85 per cent of the firm’s total value.

“Our advisers are both customers and shareholders, and this aligns the drivers of the Matrix business with the business itself. If you’ve got ownership, you’re also more realistic about what’s good for the company, and we receive healthy criticism and feedback from our advisers,” Dummett says.

Matrix does not intend to grow much bigger than its current 35 principal offices, with a maximum of 50 offices seen as critical mass. By keeping small, the company is better placed to manage its network with an existing staff of seven full-time employees.

Its smaller size also helps to facilitate a network environment, Dummett says.

“Our advisers know and ring each other. They will refer their clients to other advisers within Matrix if they can’t provide the service themselves. Our size enables us to foster this kind of environment,” Dummett says.

Advisers with Matrix are equally encouraged to keep things small, and Matrix would rather see each adviser servicing fewer clients that have larger sums of money to invest, than provide a shallower service to thousands of clients.

This, says Dummett, is the way of the future. “The advisory industry is moving towards greater depth of service. We adhere to the trend forecast that people will not accept transaction-based relationships, they will only pay for advice. This means advisory income will depend on quality and depth of service, not quantity,” she says.

Financial planners in today’s market are faced with two other imminent challenges, Dummett says. They must adapt to an industry that is continually being reshaped by consolidation between fund managers. This could create a shortage of funds in the market and places too much stress on legacy administration systems, which are difficult to integrate following mergers and acquisitions between institutions that operate outdated and disparate technology systems.

And planners will be challenged to come up with intelligent financial planning strategies to maintain profits in an environment of diminishing returns.

“Baby boomers are getting close to retirement, which means a huge amount of investors will transfer their investments from wealth accumulation to income streaming. This is a challenge for financial planners, especially in a single-digit return environment. They’ll need to come up with new strategies to generate income streams for their clients, without them outliving their capital,” Dummett says.

She says financial planners at Matrix typically service wealth accumulators, like small business owners and working directors. However, the retiree portion of their market is growing, and advisers must start coming up with new strategies to cater for this market.

“People often seriously underestimate the lump sum they need to retire, and Australians need to manage their expectations and increase their retirement savings,” she says.

Matrix’s biggest challenge to date came two years ago, when it struck a deal with technology firm Oasis to launch and develop a superannuation master trust and wrap system that would be branded under the Matrix name. Now, the two Matrix products hold around $200 million, even though Matrix also offers four other administrative systems to its network of advisers.

If things go according to plan, Matrix should reach its target size of 50 principal offices within one year.

The company also plans to put a financing facility in place to help advisers acquire other practices within the Matrix network, whose directors retire or exit the business. This will help to stabilise the number of planners within the Matrix dealer group, and help individual offices grow their business by providing them with a line of finance to make acquisitions.

Three years down the track, Matrix has successfully established a network of financial advisers and provides administration, research and compliance services. Its task for the future is to focus on sustaining what it has built to affirm its presence in the Australian marketplace.