Perserverance pays off for Colonial

From a rocky start six years ago, the Colonial Partners is paying dividends for its parent group. John Wilkinson traces the trailblazing path left by one of the first planning groups in Australia to em-brace franchising.

From a rocky start six years ago, the Colonial Partners is paying dividends for its parent group. John Wilkinson traces the trailblazing path left by one of the first planning groups in Australia to em-brace franchising.

Despite its detractors, Colonial’s financial planning franchise operation has continued to grow dur-ing its six years of existence.

When the franchise operation was started, the concept was to move Colonial’s salaried life agents into an environment where they could start to sell products from other manufacturers. Colonial had just bought the State Bank and was undergoing a cultural change with the arrival of the new chief executive Peter Smedley.

Colonial general manager of licensed financial services, Allan Griffiths, admits the advisers had become disillusioned with the old system which included hefty up-front commissions.

The decision to create a franchise system was greeted with scepticism by the financial services in-dustry at the time. When a number of the long-term life agents left at the end of year one, many ob-servers were convinced the experiment was doomed.

At the end of the first year, about 30 of the original 250 franchisees had left the group. These were replaced with 50 new people from outside Colonial.

The franchise concept also took some time to generate premium income for Colonial. The general manager retail for that time, Con Steendam, said the first nine months of the operation produced very poor premiums, totalling only $50 million. By the end of the first year it had jumped to $152 million. The dramatic boost in the last three months saved the concept, as Colonial was not willing to experiment with a concept that wasn’t going to work.

Perseverance has paid off, with 264 franchises having about $5 billion of funds under management.

And the changes during the past six years have not just been limited to boosting funds under man-agement or the profitability of the operation for Colonial.

The business now operates under the Colonial Partners banner and its franchisees are selling a much wider range of products compared to those of six years ago. Mortgages, credit cards and insurance products are now sold next to equity funds, master trusts and superannuation products.

Education standards for planners wishing to run a franchise have grown with the industry. Griffiths says planners are now expected to have DFP1 and 2 and to possess the ability and determination to reach DFP 8.

Another essential requirement to become a Colonial Partners franchise holder is business planning skills. Griffiths says the franchisee is expected to produce a business plan and many now use con-sultants to check the viability of the plan before submitting it to Colonial.

“We are looking for people who can produce quality business planning skills as well as the industry education requirements for becoming proper authority holders,” Griffiths says.

The business-planning component must also take into account technology changes. Griffiths says the group is preparing for e-commerce. At present Colonial Partners communications are all elec-tronic and Griffiths says paperwork has been slashed dramatically between franchises and head of-fice.

A franchise holder is also expected to ensure their back office support staff are quality personnel to meet the service standards expected by Colonial. Franchises becoming allfinanz operations and franchise holders are now encouraged to employ specialised staff.

“Our difference is we are trying to build an allfinanz business with the planner,” says Griffiths.

“As we are trying to supply any financial service, it is asking a lot of an individual to be an expert in all areas.”

This has lead to staff specialising in specific areas like mortgages, risk products or superannuation.

The use of specialist staff has a two-fold benefit for the franchisee. Firstly, the quality of the service given to the client is higher and secondly it enables them to lock-in clients and cross-sell.

“Having specialist people provides the franchise with a good income stream coming from a variety of sources,” Griffiths says.

The income steams have made the franchises attractive for people wishing to buy into Colonial Partners.

While life agents still account for 50 per cent of the franchises, other financial planning groups and accountants have bought franchises subsequently. The franchises are now spread throughout Aus-tralia.

Griffiths says there are no new franchises being created, so a planner would have to buy an existing business. Colonial does not buy franchises back, but does help a franchisee sell the business and will provide finance to a prospective purchaser through Colonial State bank.

“The purchaser has to meet the education standards and proper authority holder requirements,” he says.

The franchise does not have a specific geographic area although most clients come from the area surrounding the office. Where distance is a problem some franchises sell clients between them-selves.

Some franchises have chosen to become branded Colonial Partners franchises. This includes sign-age and interiors fitted out in the corporate style displaying Colonial products. A branded outlet tends to sell mainly Colonial products, Griffith says.

The franchises that keep their individual identity are more flexible in selling different brands of products, although Griffith says nobody in Colonial Partners is limited to only selling the com-pany’s products.

The independence of the franchises is also emphasised by the Colonial Franchise Trust. This con-sists of 10 owners who act as a liaison between the franchisees and the Colonial group. The Trust has sub-committees to look at specific areas of development for the group. These include commit-tees on products, technology and standards.

The trust is not a disciplinary body nor does it mediate between Colonial and a franchiser if there is a dispute. So far no disputes have ever arisen that need third-party arbitration.

Colonial supplies back office services to the planner including education, compliance and technol-ogy support. Business development is the responsibility of the franchisee, but help can be given by Colonial if required.

The franchisees meet every quarter in all capital cities for development and education sessions. Colonial supplies speakers from various divisions of the Colonial group. The aim of doing it in-house is to minimise the time out of the office. The meetings generally last a day.

“Apart from the training sessions, there is the interaction between the various franchises and this helps those planners who work remote from others in Colonial Partners,” Griffiths says.

“The day-long sessions cover areas of business administration, which some planners need help to tackle issues like performance appraisals of their staff,” he says.

The sessions are also designed to ensure the advice and service meets their clients’ expectations,” Griffiths says.

“Today at Colonial Partners the customer is king, whereas in the past it used to be the product that was king,” he says.