Quality over quantity

What is more important — the number of advisers within a dealer group, the quality of those advisers, or the level of funds under advice?

This year’s Money Management Top 100 dealer groups survey, when viewed in the context of historical data covering the past six years, reveals two very different strategies:

> rapid growth through acquisition aimed at achieving adviser number scale in the market; and

> growth built around increasing the level of funds under advice (FUA) per planner.

On the basis of the highest number of advisers within a single dealer group, Professional Investment Services (PIS) emerges as the winner for a second year in succession.

On the basis of FUA, AMP Financial Planning (AMPFP) emerges as the clear-cut winner for five years in a row.

PIS can count 1,444 advisers within its group even before those associated with its acquisition of Bongiorno Financial Advisers are added. However, despite rapid growth, PIS still only boasts $15 billion in FUA, compared to $41 billion for AMPFP, with its 1,222 advisers (see tables on pp32-35).

Simple arithmetic then suggests that the average customer account balance being handled by AMP advisers is higher than that of their counterparts at PIS.

Perhaps just as importantly, it can be argued that the 438 advisers working within ABN Amro Morgans can boast the best FUA ratio in circumstances where the data reveals $30 billion in FUA.

This year’s Money Management Top 100 data when combined with the historical analysis, paints an almost perverse picture of the dealer group environment in Australia: the medium-sized are working hard to gain scale while the big are tending to consolidate.

What is clear from the historical data, however, is while PIS has been on a steady growth path in terms of adviser numbers, it has been actually running against the long-term pattern of the majors in circumstances where adviser numbers for AMPFP, CountWealth Accountants and Westpac Financial Planning have all been trending down over the past four years.

While initially reflecting a similar trend, Commonwealth Financial Planning has tended to hold ground.

However, the historical data revealed by six years of the Money Management Top 100 survey reveals that the downward trend in adviser numbers in the leading dealer groups began in 2003 and has continued.

According to the managing director of Fiducian, Indy Singh, the phenomenon is attributable in part to strategic decisions taken within particular dealer groups to dispense with pursuing high adviser numbers and instead to look for better quality advisers who represent the right cultural fit.

“There are people who might have 1,000 advisers and if they (the advisers) write $1 million each, are they serious financial planners?”, Singh asked while acknowledging that a dealer group employing such planners would still be able to boast $1 billion in FUA.

“Whereas in our case we’re targeting at least $4 to $5 million net per person,” he said. “So with 50 or so advisers, that’s $250 million and that is not bad.”

The bottom line, however, is that PIS has quite deliberately adopted a different and more aggressive strategy than many of its competitors and it is one of which its chief executive, Robbie Bennetts, is clearly very proud. He speaks of it as a “high touch business” that spends a lot of time with its people helping them grow their businesses.

“They get substantial growth inside their business and they end up looking for another planner or another paraplanner to come in with them,” Bennetts said.

What is more, Bennetts makes no bones about PIS being prepared to recruit newly qualified people, pointing out that it maintains an ongoing relationship with universities and recent graduates.

Looking at the broad survey outcome, Singh said that while the data may indicate a downward trend in adviser numbers within some major dealer groups, this had not been the case for Fiducian where there had been ongoing growth, albeit that it had been relatively slow. Fiducian now boasts 53 advisers.

“We have been very slow in getting people on because we have this Fiducian Family concept and that is a difficult hurdle to cross, but that is not a quantitative thing, that is a qualitative thing,” he said.

“It is also hard to get good advisers, but we are getting them and we are growing slowly and if one grows at our level at 20 to 25 per cent, we can bring them in and get the cultural fit and get them to understand our processes and ways and then build and help them,” Singh said.

He said that while scale was important, it was also important to ensure that businesses did not over-reach themselves.

“Don’t bite more than you can chew,” Singh said. “It is all very well recruiting lots of advisers but will they write business and will they be of value?”

He said it was also a question of being able to recruit the right people in circumstances where the market for financial planners remained highly competitive.

“In a market like this the good guys are pretty busy and pretty hard to dislodge,” Singh said.

He said compliance issues were also a factor when selecting advisers.

“There are, of course, compliance issues and we tend to over-comply,” Singh said.

The downward trend in adviser numbers within the majors may be coming to an end, with AMPFP signalling to Money Management that it is now looking to grow planner numbers.

A spokesman confirmed the historical data in the Top 100 saying the company had begun a transformation in 2004 that included a focus on helping planners become successful business owners as well as highly skilled financial planners.

“One of the implications of this was consolidation in the profession, so there were fewer practices but the average number of planners within each practice is increasing,” he said.

AMPFP said consolidation was attractive for many planners because it allowed them to share the challenges of running a business while continuing to spend time in front of clients.

“Over the past five years or so, there is no doubt that changes to financial planning as a natural consequence of ongoing requirements under FSR has led to many planners deciding to sell their businesses and either retire or find other opportunities,” the spokesman said.

“AMPFP believes that the trend will reverse in the medium-term and has initiatives in place to grow and develop planners. This includes sourcing people who are graduates, or who have already been successful in business and are looking for new opportunities, or from paraplanners or from planners from other groups.”