Financial planners look to diversify revenue

Financial planning businesses are increasingly looking to diversify their revenue streams in an attempt to secure their business models in the face of looming Future of Financial Advice (FOFA) reforms - and potentially a second global financial crisis.

Practice sales specialist Alan Kenyon, managing director of Kenyon Partners, said he had seen a significant uptick in enquiries from financial planners concerned over the potential impact that the European debt situation on global markets would have on their businesses.

Those businesses are looking at taking on other revenue streams such as mortgage business and accounting - which are less affected by investment markets than financial planning businesses - through joint ventures and referral relationships.

"There are lots of conversations happening. There is a genuine interest in doing it, but there are often different cultures and we're being asked to negotiate a few of these. Financial planners aren't always sure how to go about it," Kenyon said.

He said there were challenges to meet in terms of finding another business with the right culture, and the question of when expanded in-house services training would need to be provided.

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Accountants would need the relevant qualifications, so a joint venture would be required unless an accounting partner came on board, Kenyon said.

Andrew McKie, the chief executive of independent investment and advisory group Elston Partners, said the diversified revenue streams within the Elston business stemmed from client needs, with clients wanting to access a variety of services through a central trusted adviser.

He said the generalist approach to financial planning in the future might be dead to some degree, with more information available on the internet and intra-fund advice increasingly being offered by institutions and superannuation funds.

That all made it harder for a generalist to add value and to target the high net worth space, and planners will need to develop further expertise through specialisation, McKie added.

Kenyon said that there is little new financial planning business being written at the moment, which gives planners the opportunity to cross-sell. McKie said this means potentially there are more growth opportunities for those who do specialise, and added that much of the growth at Elston has come from acquiring business from competitors rather than writing new business.

Tim Brown, chief executive of diversified broking and financial services group Vow Financial, said Vow was doing its best to help the roughly 20 per cent of its brokers who want to add an extra service such as insurance to their overall offering, and the 10 per cent or so who are interested in becoming full planners, to achieve their goals.

Although a mortgage business might sell for two or 2.2 times its annual income, adding financial planning, insurance or property advice could increase it to more like four or five times because the business was better able to survive a downturn, he said.

Vow currently has joint ventures in place with three financial planning groups - all through ex-mortgage brokers who better understand the transition - predominantly around risk, super and property advice, Brown said.

The diversified revenue streams protect the business in the case of further cuts in commissions from the banks down the line, and hold them in better stead in the event of unforseen regulatory changes, he added.