Joining the Madison club

Like a lot of small dealer groups, Madison Financial Group started out almost like a co-operative between friends.

These days, director Peter Mullens says it is still the group’s aim to find a group of like-minded people with similar objectives.

“We almost run it like a club,” he says.

A boutique dealership with only 18 advisers, Madison was established back in 1983. Despite existing at the smaller end of the non-aligned dealer group spectrum, it has an impressive $600 million of funds under advice.

Mullens suggests it is because the group offers a lot of self-managed super fund (SMSF) advice.

He thinks working for an independent dealership presents a better image to clients.

Since the introduction of FSRA in March, advisers have been bracing themselves for a grilling from their clients. Are they just pushing product? Are they paid on a commission basis? Are they getting something on the side?

Mullens says questions about dealer independence, especially regarding how advisers are paid, are often asked.

He says clients will obviously appreciate a remuneration system that doesn’t attach payment to fund manager selection, although he says commission-based remuneration will be used in ‘appropriate circumstances’.

“Given that most of our retail product is going into wrap, we’re not interested in that product at all as a general rule. If we do use any product that produced any brokerage we rebate it anyway and I think they [the client] appreciate that.”

Client interests aside, Mullens says independence offers choice.

He suggests some of the research departments of bigger groups will often bar their advisers from using whole asset classes.

He recalls a story someone told him a couple of weeks ago. Apparently a new addition to a large dealer group’s management team had a property analyst background and was biased against property syndicates. The group decided to stop promoting the asset class, and eventually anybody who dealt with it didn’t have any property syndicates in their portfolio.

A few years ago Madison experienced similar problems with limited product offerings, this time with its choice of wrap provider. At the time, it happened to share an office with an emerging wrap provider.

“But while we knew those guys and knew them well, we couldn’t use their product because at that stage it didn’t have direct equity as part of what it offered.”

Now Mullens is proud to say the group isn’t anyone’s captive.

Despite using a badged BT wrap, Madison is not bound to put a certain amount of capital in a certain direction, he says.

“We made the decision to recommend the BT wrap after looking around ourselves, we didn’t have it forced on us.”

A financial adviser himself, Mullens says working for an independent group means he is trusted with a wider range of products, new ones in particular.

A good example are hybrid funds that have recently come onto the market.

Mullens doubts that any of them appeared on the recommended list of the big adviser groups for a long time. He says Madison started using the UBS hybrid fund the day it was launched.

“We went to [the launch], we listened to what was said, we understood the risks. That’s the benefit or working for a smaller group. You get a much closer look at what’s going on.”