A country practice

Financial planning in rural areas may be more about sheep than slick city offices, but in essence many regionally-based planners believe their service is basically no different to that of their urban counterparts.

While the Australian Securities and Investments Commission (ASIC) will be targeting these regional planners in its latest grassroots compliance campaign (see breakout), they are subject to the same standards under the scrutiny of their dealer groups and industry body, as well as their clients — who may also be their friends and neighbours.

So what sort of opportunities are out there in the bush for advisers, particularly given they are generally dealing with a less financially literate, ageing clientele.

Certainly, AMP’s recent study into income distribution, using census data between 1996-2001, presents a case for optimism in some quarters.

The study shows this period was particularly good for those living in NSW and Victoria with household incomes increasing by 26 per cent.

Farmers in NSW, Victoria and South Australia experienced greater growth in income in that period, with rural towns and regions averaging 27.8, 28.5 and 28.3 per cent respectively.

However, rural areas in Western Australia and the Northern Territory experienced a contraction in income growth, lagging at 10.2 per cent and 16.4 per cent respectively.

Silvan Ridge Financial Services principal Mike Raselli agrees his corner of Victoria has had a good run.

Raselli is based in Warrnambool in the state’s western district — a mixed farming, small business and tourism community. It’s Malcolm Fraser territory and not affected by drought. While deregulation has changed the fortunes of the local dairy industry, the rest of the farmers are faring well.

“As far as the industry is concerned, client sophistication has changed but not for the rural scene. I see clients in Melbourne… but it’s more personal in the bush. It’s not as clinical and rural people are more trusting… they want more from you. Rural people tend to take longer to make a decision, but then are more loyal once they’ve made it,” Raselli says.

Most advisers agree that two common issues for the rural client are how to extract value out of a farm business as they approach retirement and seasonal cash flows.

Like many general planning practices in the regions, Silvan Ridge undertakes a reasonable amount of estate planning, despite farmers only making up 20 per cent of its clientele.

“It’s a real issue. The farmers stay on for a much longer period and the assets they’ve built up becomes a liability in terms of lifestyle. The solution must be pre-planning. They need to build off-farm assets and plan for retirement,” Raselli says.

One of the features of regional practices is often the broad geographic spread of clients.

With 500 clients in Melbourne stemming from his rural clients, this part of the business has grown considerably and Raselli visits the city every fortnight.

Silvan Ridge has 20 staff including five certified financial planners and its services cover mortgage broking and general insurance as well as financial planning.

“The orientation from insurance to financial planning has been the main reason for growth and the external referrals have helped too.

“Moving from commission to fee-for-service is slow and it’s an education process. That takes a significant amount of time… to have clients pay for advice rather than just a transaction. Today, we are heading into the advice-based business.”

Do country clients have a disposition to self-directed investing? Raselli thinks not.

“Clients are more sceptical to invest outside of managed products. Rural people are more risk averse than investors in major cities. Their land is their major investment. Historically, they invest back into the business and they don’t want to invest elsewhere.

“They should be diversifying and not having all their eggs in one basket… The younger ones are moving into other forms of investments. I have quite a few with external investment property and share portfolios but they are finite in number.”

Bruce Birchall, national manager of Charter Financial Planning, which provides services to practices such as Silvan Ridge, says the country firm growth rates are no different to those in the CBD.

“If I look at individual practices, there’s no real differential in the way they deal with their clients, nor the way they charge for advice and services,” Birchall says.

“Most advisers look after 250 to 300 full financial advice clients individually and this is the same for both the city and country.

“The overall number of clients in a business is only limited by the number of advisers.”

From an adviser perspective, he says country planners may have a natural advantage with their centres of influence.

Birchall says an increasing number of joint ventures are springing up between country planners and their local chartered accounting groups as the parties formalise the structures to recognise client sharing.

“Professional businesses are really seeing the value in that.”

Not only are dealer groups such as Charter consolidating, but there is also a tendency for high-net-worth investors to diversify their sources of advice.

Inevitably, costs will rise for smaller investors left out of this equation.

Rod Edwards, director of Perth-based RSM Bird Cameron Financial Services, a chartered accounting group with an extensive rural network — agrees dealer groups are “picking up the slack” and believes the smaller investor “will lose out…because they’re the ones who can’t afford to pay and that’s where ASIC may have got it wrong.”

Edwards says that farm sales and succession is a hot topic right now in Western Australia, which despite the “threat of drought, frost and rust” had a good farm year in 2003 with record crops.

As a result, “a lot of people are looking to quit while they can”, he says.

Another hot topic is the quality of advice received by clients in the bush.

According to university lecturer and principal of Newcastle-based Lawler Financial Services, Mark Arnold, financial planners trying to give advice on tax issues such as discretionary trusts and self-managed super funds may be overstepping their role and are “often on the fringe of their knowledge”.

“Many of the big players try to fast-track people to PS 146 compliance so that in weeks, they may be advising people on their total life savings.

“Basically, if these institutional dealer groups see an opportunity where the adviser has the potential for a strong referral base then they may move mountains to get them out there as fast as possible. The back-office can do a lot of their work and the paraplanners will do the plans…This may be more likely in a country area,” Arnold says.

“You may find that an adviser has a profile from the council or within a community group and then people are more likely to consult them if trust is strong or their reputation is high in other areas — not for financial advice. The client will seek advice on the trust/reputation relationship and sign on the dotted line.”

But regional planners say they can’t hide from bad advice when it comes to seeing clients daily in the street or at the local supermarket. At any rate, a country community expects more from its professionals, compared to cities.

According to Scott Mildren, of Peppin Planners in Deniliquin, NSW, a small community drives reputation and the ‘bush telegraph’ can prove a major inhibitor to wrongdoers.

“It’s not [just] the regulator or licensee that keeps rural advisers doing the right things, it’s clients, as they end up being people who are your friends,” Mildren says.

When he’s not behind his desk or travelling hundreds of kilometres to see clients in southwest NSW, country Victoria or as far north as Brisbane, Mildren puts on his community hat as treasurer for the community housing centre, attends Lions Club meetings and lectures two local high schools on the FPA Dollarsmart program.

He says it is par for the course for financial advisers to get involved and help support the town’s projects.

For some rural investors, lack of choice and access to technology may still be a beef but it all depends on your postcode.

Mildren says many country practices have to try harder and rely on their technology to deliver.

Getting tech support people is also a challenge. Mildren says his firm compensates by upskilling its staff and has a junior adviser on board who is IT literate.

“We call ourselves the Galapagos Island because we’re out there on our own solving problems.”

RSM Bird Cameron senior financial planner David McArthur believes it is impossible to profile a typical regional client because “they are not homogenous, nor are they just about primary production”.

He says his South Australian clients reflect the diversity of areas such as Port Lincoln where commercial fishing and the aquaculture industry has produced more millionaires per capita than anywhere else in Australia.

“Prior to the recent legislative changes, the man on the land significantly relied on their accountant for business planning and investment decisions.

“Insurance agents, although vital, provided a limited service,” McArthur says.

“Now, financial planning has been thrust into the limelight and will play a more significant role, particularly with younger farmers, who are more aware of investment markets and the importance of saving for their future.”