Dealers blame FSR for fall in numbers

The country’s largest dealer groups lost the most financial planners in 2004 and, according to most of them, Financial Services Reform (FSR) was to blame.

Professional Investment Services (PIS), Australia’s largest independent dealer, lost 167 advisers, topping the list for this year’s biggest loser of advisers.

According to managing director Graham Evans, the majority of those who left were unable to stomach FSR.

“Some people didn’t want to meet the education standards or retired. When we bought IFMA [Insurance and Finance Managers of Australia], we did have a lot of people who were from the old school and a lot of those guys just decided to retire,” he said.

The nation’s biggest dealer group, AMP Financial Planning, lost 115 advisers, which, because of its size, equates to a mere 8 per cent of its total base.

A spokesperson for the financial services giant says the rigours of FSR caused many advisers to depart. As for the others, the spokesperson says there was a tightening of controls within the group to flush out proper authority holders who weren’t advising, such as office managers.

Australia’s second biggest independent dealer group, Count Financial, lost a similar number of advisers.

Managing director Barry Lambert explains the loss in much the same way as PIS and AMP.

“The ones to go were just advisers within the franchisees who were inactive and, because of FSR, we had to clean them out.

“I’d say everybody’s cutting advisers because of the increased cost of compliance. If you’ve got someone and they’re not doing anything, spending money on them doesn’t make any sense.”

Lambert says Count has never been interested in growing adviser numbers just for the sake of it. “But we are on the look out for quality people and we are attracting them because of the good performance of our share price.

“Last November, for example, we issued our franchisees 10.85 million shares at 78 cents and they are now worth $1.40. So in four months they’re up $6 million,” he says.

“I’d suggest that besides the fact that we do things better, the fact that our advisers with options make $6 million over four months provides a pretty good incentive for them to stay.”

Apart from FSR forcing many out of the profession, there have been some other factors causing the bigger groups to shrink. For instance, one explanation for the trend is that advisers have wanted to seek refuge in boutiques. Many heads of boutique dealerships have told Money Management that new recruits turned up on their doorstep frustrated with the bland bureaucracy of the institutions and hungry for a taste of independence.

There are other explanations, too.

Listed group DKN Financial says it cut adviser numbers intentionally, sticking to the mantra that it’s not how big your dealerships is, it’s how well you use it.

“We’re focusing on the number of quality practices associated with us. So what we prefer to do is have a deeper, more quality-based relationship with fewer practices, instead of getting bogged down in the numbers game,” DKN chief operating officer Phil Butterworth says.

He says revenues generated by the group’s current advisory base is exactly the same as when it had 200 advisers.

“So what we’ve been able to do is decrease the cost of the service level.”

Westpac Financial Planning, ranked at number five on the list of groups that lost the most advisers, says it has put recruitment on hold until it completes a revamp of its dealership business.

Under Project Sunrise, all Westpac advisers will be expected to attain CFP status and will be able to share in the revenue they generate for Westpac.

A spokesperson for Westpac says as soon as Project Sunrise is fully functional, hiring will go back to normal levels.

Generally, institutions are hoping to grow adviser numbers in 2005.

In an attempt to encourage growth in 2005, AMP is revamping its advice process to include a series of advice packages to attract more business. It has also changed its branding proposition to make the AMP name a little less prominent on signs and business cards.

NAB has just announced it will be dangling a new series of sweeteners in front of planners to try and lure them into the MLC fold. AXA, which has lost around 50 advisers, say it is currently experiencing an increase in planners. Westpac is about to step up its recruitment drive now that Project Sunrise is near completion, while DKN has amassed a $600 million war chest that it plans to use next year.

As for the theory that the institutions are losing advisers to the boutiques: “Well they would say that,” says a spokesman for AMP.

“There’s always going to be planners who switch between dealer groups and we might have lost some planners like that; people who were looking for a bit more flexibility in a boutique dealer group. And we might have gained some who were looking for a little bit more security of having the structures and the backing of a brand like AMP.

“That sort of movement is always taking place, it’s always happening, every year.”

Count’s Barry Lambert agrees.

“There would be some advisers who don’t want to be under a bunch of controls, but from our point of view, for most of those who have that view, we’re happy to see go because we think they’re just too dangerous for us. We’re not prepared to bear the risk of that person’s attitude, as they could do something risky and bring down the reputation of the whole company.

“Not all of them are bad, let me tell you that. We will lose some people who are good, who just want to flirt a little bit with a few things and yes, I’d say that’s a weakness in a brand, and I’m sure that applies to everybody. But most people should be able to understand the power and the benefit of the brand, like — in our case — the equity ownership, the marketing and the support services,” Lambert says.

“And quite frankly, when these people set up their own business, they may just be destroying wealth. Because they spend all their time trying to run a licence when they would have been better off just outsourcing that to another dealer or licensee and concentrate on running their business to be the best financial planner in town.”