Inside the Dealer 30/03 – Advisor leaves its troubles behind

Two years ago, Advisor Investment Services was going through one of the most turbulent periods in its 18 year history. Today, the group has steadied and is back in the black. Stuart Engel reports on the turnaround.

Wes McMaster understands the Advisor Investment Services (AIS) business.

And so he should. His 14 years with the business makes him one of the group's most loyal financial planners. And 18 months ago, he liked the business so much, he decided to run it.

Or at least Mercantile Mutual decided he should run it and he agreed their offer to take the responsibility on his shoulders. And Merc's offer has paid dividends for the group's shareholders.

In the year to September last year, AIS posted its first profit in years. While the profit was a modest $31,000, it was a large step up from the $596,000 loss the group had posted in the year to September 1998. The group also posted record production for the year - with half the number of advisers of the previous year.

While McMaster does not relish dwelling on the past troubles, preferring to look to the future, he does acknowledge there was a major rupture in the business prior to him taking the reins in October 1998.

The group had a falling out with its Queensland manager, Robbie Bennett, who departed to form the Professional Investment Services group. Bennett's departure and other management difficulties decimated morale within the group to the point where the group halved its numbers from 220 in June 1997 to 110 in June 1999.

McMaster sold his practice just outside of Hobart under a succession plan he had in place for a number of years and immediately moved into action at Advisor's head office in Melbourne.

His immediate priorities were to re-establish order and to build up morale among those advisers who had remained loyal to the group.

"I immediately instituted a disciplined process to the way the business was managed which appeared to be lacking in the past," McMaster says.

This meant putting together a new reference manual; reviewing and correcting policies; and reviewing the income sharing plans between AIS and its advisers so that they were "consistent and transparency".

A number of business development managers were employed to support the advisers out in the field and a marketing team was established to help the advisers develop new business. A paraplanning service was introduced and a training manager was employed to create some rigour to the group's training initiatives. He has also added more muscle to the senior management team by hiring the former head of Westpac's financial planning business, Bruce McCreedy, as the group's general manager.

"From these initiatives, the advisers see that I have a consistent and realistic approach to managing a group of financial planners and accountants," McMaster says.

One of the challenges of managing a group like AIS is the mix of accountants and advisers. Not many in the industry realise it, but AIS was one of the first dealer groups to develop the relationship between advisers and accountants.

The group rose alongside the development of an accounting software package which McMaster says was "revolutionary at the time". Advisers were placed in accounting practices at the same time the software was installed.

While the software has come and gone, the essential business plan remains the same. About 50 per cent of AIS planners are accountants and 80 per cent of its revenue comes from financial planners working within accounting practices.

McMaster has two major planks in his strategy to grow the AIS business - developing the businesses of existing advisers and growing the number of advisers that make up the group.

Through a combination of training, marketing and business development initiatives, AIS hopes to grow each advisory practice organically.

"This helps the planners generate more income which in turn helps the AIS business," McMaster says.

The second plank of the growth strategy is to bring more planners into the group.

But McMaster is in no hurry to build up adviser numbers for their own sake. He wants to make sure the type of adviser that joins the group understands the culture of AIS and is prepared to grow the financial planning component of their business.

Part of the strategy for expansion will be to leverage off the financial muscle of its parent. AIS is looking to take minority stakes in firms with the ability to provide significant growth.

"We are looking at practices with about $1 million in gross income, with at least two partners and the potential for significant expansion," McMaster says.

"This is not a strategy to simply prop up a planning practice. We are looking for a return on equity of about 15 per cent and hope to double the value of the businesses within five years."

AIS is also looking to its own advisers to facilitate growth. It has set up a business loans fund through Mercantile Mutual to offer planning businesses loans to purchase existing planning businesses. These loans are at commercial rates but offer an advantage over a business loan taken through a bank.

"It does not require bricks and mortar backing like banks often require. If a business defaults on its loan, AIS can take over the running of the business and servicing of the client base," McMaster says.

These loans will also be made available to advisers looking to fund succession planning initiatives.

McMaster will not be drawn on the number of advisers AIS hopes to bring into the group with these strategies. Instead, he prefers to pin point the business motive of the AIS group.

"There is no specific number of practices that we are looking to bring into the group. The focus is on the profitability of the business not on the number of advisers," he says.

Vital Statistics

Name: Advisor Investment Services

Advisers: 110

Funds under administration: $600 million

Ownership: Mercantile Mutual

Founded: 1982

Key figures: Wes McMaster, Bruce McCreedy

Master trust: Ausvest

Research: Internal