Inside the dealers: Financial Services Partners

How does a guarantee of a 50 per cent increase in new adviser revenue over two years sound? Or failing that, a full rebate for all start-up fees? By anybody’s reckoning, it’s a pretty good offer.

That’s part of the value proposition the chief executive of dealer group Financial Services Partners (FSP), Geoff Rimmer, is making in an attempt to build scale by luring quality advisers and practices across to his group.

But in an increasingly competitive marketplace, where dealer groups are all jockeying for acquisitions, is Rimmer’s objective of delivering 50 new firms, or about 85 authorised representatives, into the FSP fold over the next two years too ambitious?

For the faint-hearted, yes, but not for Rimmer, whose enthusiasm for FSP’s service offering is almost infectious.

That’s why Rimmer believes initiatives like FSP’s CorePlus program, its profit sharing arrangements, its professional affiliations, its commitment to quality of advice, and its new member rebate offer, along with the capital protection that comes with the backing of a big parent institution, will increasingly become compelling reasons to join FSP.

Rebate

But what about this new member rebate? Is it just a clever marketing gimmick?

“No, not at all,” replied Rimmer. “What we have acknowledged is that if you are already an established business then one of the things that is very important to you is the preservation of cash flow. We know there is a great deal of disruption in the first year when a practice joins a new dealer group. We also know that there are a number of models that are addicted to rebates and other forms of remuneration.

“So we want to make this procedure as easy as we can when bringing new advisers into FSP. We do this by starting a new process that they undertake over the next three years, making sure that come 2012, the new adviser will have a very robust business model that enables the planner to not only stay in the industry but also profit from it,” he said.

“In the first year, the proposition is quite inexpensive — it’s an investment from FSP to get the adviser in. In the second year, the adviser starts to graduate over to the FSP terms, so that by year three, the adviser is fully integrated into the FSP model.”

And if FSP is unable to hold its end of the agreement by helping to build an adviser’s revenue, it will repay the adviser’s fees that had been paid to the dealer group in the initial two years, provided the adviser has actively engaged with its high performance business program.

“It’s an attractive offer,” Rimmer said. “But we see it as an investment in the future.”

Quality of advice

But, according to Rimmer, what’s more compelling is FSP’s commitment to becoming the leader in the quality of advice space. It’s a big call.

“It’s one thing to talk about it but it’s another thing to actually invest in it. What we’re finding is that a lot of dealer groups are saying the same thing but when you look at the actual substance that sits behind it, there’s not much there.”

Rimmer concedes that the quality of advice issue is a complex one, and it is why FSP commits to annually engaging an external independent organisation to talk to 4,000 of its clients.

“We need to understand what they are thinking, what their expectations are and how we can improve our service offering to them,” he said.

But quality of advice aside — after all, it’s what most dealer groups espouse — what’s in it for a planner? When all is said and done, why would somebody join FSP?

Rimmer’s response is quick: referrals. Referrals built on quality of advice.

“We’ve decided to make our advisers more referable,” he said. “If I can give my members 20 or 30 additional clients, similar to the top clients they’ve got now, how can that not be a good commercial outcome for them.”

It’s a compelling statement. Eighty-four per cent of FSP’s clients would willingly refer their planner. A figure that is noticeably higher than the industry average.

Rimmer said referrals are merely the result of providing quality advice to clients, which is a result of helping practitioners become better business people and better advisers.

“For some time now, we at FSP have regarded ourselves as being very good at helping our advisers understand what it is they need to do to enable them to become better business people. To do this, we have brought in external coaches like Business Health and the Encore Group. As we’ve developed tools and processes with the advisers, a lot of that information has become specific to FSP.

“Historically, FSP has been very good at being able to say to an adviser, ‘If you want to grow and end up being a better business person and a better adviser, we can help you get there’.”

Rimmer points to the success of FSP’s program to build better advisers and businesses by highlighting two advisers: Bill Webster — an AFA Adviser of the Year finalist for two years in a row — and Chris Southgate — winner of this year’s AFA Rising Star award.

“What this illustrates is our willingness to partner with an established quality business and help them achieve better outcomes,” he said. “We’re also very good at taking young people or new entrants to the industry who are committed and wanting to move forward. It’s an absolute partnership approach.”

CorePlus

And part of this approach to building better businesses that can service the needs of clients is forming partnerships with aligned professions.

“We think that a big part of our ‘quality of advice’ framework has got to be supported by a ‘quality service’ framework, which means being able to provide clients with access to a greater suite of services,” Rimmer said. “Obviously no practitioner or dealer group can hope to do all that by themselves, that’s why you need to have access to very good alliances that can deliver you with that type of capability.”

Rimmer is talking about FSP’s CorePlus initiative, where it has formed alliances and affiliations with key mortgage broking, legal, estate planning and accountancy firms, thereby enabling his members to provide a much more comprehensive service offering to clients.

FSP has negotiated a bulk rate discount on behalf of its advisers for these CorePlus services, but Rimmer is quick to add that it is not compulsory and any adviser is free to maintain or develop professional relationships with any aligned service provider.

And sitting amongst this value proposition is FSP’s membership of the Private Broker Network, where advisers can register to sell or buy a business.

This is a group committed to better servicing the needs of financial advisers.

Independence

Freedom to develop and grow an adviser’s business is at the heart of Rimmer’s value proposition. And fundamental to this is adviser independence.

But with ANZ’s full ownership of FSP, can the dealer group realistically claim to be able to offer its advisers a truly independent platform on which to operate?

It’s a question that Rimmer fires back on.

“One of the things we have really enjoyed about our partnership with ING is the retention of our independence. Prior to the acquisition, FSP had a number of advisers that participated in all parts of our business, such as being on the investment committee, on the life risk committee and on the board, and that’s still the case today.

“What that means is the adviser has the benefit of an institutional partnership but still their independence.”

Rimmer also espouses the value of being owned by a major institution, particularly during difficult times like the present.

“We’ve been fortunate that our business model has sustained itself through one of the most challenging financial environments for some time,” he said. “Part of that business model is our dealer services are able to operate independently of any product or shareholder input. And although this has been challenging at times, we’ve been able to sustain that. This in itself is a very good story to tell.”

Rimmer firmly believes there will increasingly be a flight to quality by planning practices, particularly to those businesses that have substantial capital protection sitting behind them.

He recognises the advantages of having the backing of a financially strong parent that can help safeguard practitioners on a range of potentially expensive issues, such as Financial Ombudsman Service limits, research capability, professional indemnity insurance, and financial protection in an increasingly litigious world.

So, with ING selling its share of FSP to ANZ, did Rimmer foresee changes ahead for FSP?

He is cautiously optimistic.

“Things will change but in a positive way,” he said. “From my perspective, you’re going to have just one dominant shareholder who is very well capitalised and intent on growth. That can only be a good thing for businesses like FSP which are in the growth phase.

“I firmly believe that clients want to see a trusted brand that sits behind the advice that is provided by an adviser.”

Does this mean Rimmer is predicting the end of non-tied advice?

“No, not at all,” he replied. “I’m not for one moment advocating that all advice should be institutionally owned. We’ll still continue to see a number of boutique licensees that will be attractive to a considerable part of the marketplace. However, with the boutiques, I’m not quite sure how you resolve the issue of capital adequacy.”

Remuneration

According to Rimmer, a big part of being independent is having ownership and a say in the business that is helping your business to grow. A part of this partnership is sharing the success that all members of FSP create together. This means all FSP advisers share in 50 per cent of the profit that the group achieves each year.

While profit sharing is hardly unique, Rimmer believes FSP’s profit share plan is strong as the group looks towards July 1, 2012, and beyond — the date the Financial Planning Association has set for members to move away from commission-based fees for financial planning advice.

“Our profit share plan is robust as it is not dependant on rebates,” he said. “There has been a lot of commentary as to whether rebates are going to survive or not. We’ve taken the view that if rebates don’t survive, let’s make sure we’ve got a plan that can sustain itself through a changed remuneration environment.”

The FSP Group has three fundamental revenue streams: Financial Services Partners — the wealth management and advisory business, FSP Portfolio Services — the investment portfolio administration business, and FSP Funds Management — comprising the FSP Australian Equity Leaders Fund.

Rimmer is confident that when it comes to profit sharing, the profitability of the group’s three streams will negate any need for fund manager rebates and shelf space.

Expansion

As Rimmer moves towards his goal of attracting 50 new firms over the next two years, he already has his eyes firmly set on Western Australia, Queensland and parts of the Northern Territory, where the resources and commodities sectors are best placed to deliver significant medium to long-term growth for the group. But he was quick to add that FSP is also keen to establish a foothold in key regional centres.

So, is Rimmer on the acquisition trail now?

“Yes, we are actively looking,” he confirmed. “If there are smaller but like-minded dealerships that share the same values as FSP, we are in a position where we can look at a partnership through acquisition.”

Looking ahead, Rimmer predicts a period of consolidation and growth for financial planning — a period of opportunity.

“I think the global financial crisis has changed the financial services landscape, at least for the next five or six years in terms of the impact it will have on distribution channels.

“Over the next five years we are going to go through a period where you are going to see increasing institutional support, but then things will start to taper back down again and you will start to see a lot more independent boutique businesses establishing themselves again.”

For Rimmer, this new and evolving landscape will represent a period of cleansing for the industry, and a golden spot for growth and opportunity. It’s a spot that FSP comfortably sits in.