Search for growth leads to very different results

Institutionally owned financial planning groups account for eight of the top 10 fastest growing dealer groups in the market over the past four years.

TheMoney ManagementFastest Growing Dealer Groups Survey shows that these groups have rapidly outstripped the rate of growth of independent dealers, where planner numbers are increasing at a markedly slower pace.

Professional Investment Services(PIS) is one exception to this trend, which although being an independent group, came out as the fastest growing dealer group over the four-year period.

AXA Financial Planning,Garvan Financial Planning, ANZ Personal Advisory Services andWestpac Financial Planning & Advice, all institutionally owned, rounded out the top five.

Count Wealth Accountants, which was the seventh fastest grower in the survey, was the only other independent to feature in the top 10.

The size of growth has not been spectacular in every case, reinforcing the notion that competition for fresh blood as well as for old hands has and will remain fierce among the bigger players, whether they be institutionally or independently owned.

Yet the dominance of institutionally owned groups in the survey is a deliberate strategy orchestrated by the big end of town to buy up distribution in order to increase fund flows into their platforms and products, according toHypercompetitionpaper author andCredit Suisse Asset Management(CSAM) retail sales manager Clayton Coplestone.

This is supported by the fact that nine of the top 10 fastest growers are also featured as part of one of the top 10 distributors in the planning market in theMoney ManagementTop 50 Distributors Survey published in March.

The Dashboard Company managing director Jim Stackpool says the top institutional distributors have outpaced other players including independents in the market, as they have the resources to grow at speed.

“They can grow so quickly. They have bigger cheque books and they can buy up bigger slabs of the market,” Stackpool says.

Planners are also being lured by the infrastructure and support services provided by these groups, according to Coplestone, especially with the advent of the Financial Services Reform Act (FSRA).

Stackpool agrees, saying new entrants to the industry are not as ‘hung up’ on independence, being happy to build businesses aligned to institutions due to technical, compliance, IT, product and marketing support.

“Having just a back-office supplied by the big guys will mean being aligned to them is less of an issue,” he says.

Stackpool argues that the difference between institutionally and independently owned businesses lies in their growth strategy. Institutions grow inorganically, by buying up distribution, while independents grow organically by building systems and a support tree.

He says businesses like PIS, Garvan andCharter Financial Planningfollow a more organic model of growth, while those such as AXA and NAB go for inorganic growth.

The independent groups in the survey, shown in the Fastest Growing Independent Dealers table, are focused on growing organically, and are not growing at the same rate as the fastest growers — with the exception of PIS and Count.

Coplestone says this is because independents are largely focused on increasing the number of planners profitably, rather than just looking for sheer numbers.

Despite this slower rate of growth, theMoney ManagementTop 100 Dealer Group Survey showed independent groups still hold about one-third of the planning market.

The top groups have managed their growth by targeting the accounting profession, and Coplestone believes this is still a growth area, as accountants will have to “play in the planning space” to retain clients.

Coplestone suggests that this organic growth generally ensures increased profitability, and suspects that very few large dealers are “making real money” out of their businesses, having pursued inorganic growth.

Both Stackpool and Coplestone argue the Fastest Shrinking Dealer Group table is evidence that dealers have realised the error of applying inorganic growth — that is, simply buying up distribution at all costs.

These dealers have now been forced to scale back their advisory forces as they move towards a more profitable model of business rather than one based on breadth.

“A number of groups are saying ‘bigger is not necessarily better, let’s lift the bar’ and suddenly there is a greater barrier to entry, with planners having to contribute profitably to the business,” Copplestone says.

Commonwealth Financial Planning andCommonwealth Financial Servicestopped the list of the fastest shrinkers, having scaled back numbers over the four-year period.

The Commonwealth Banking groups says this decline in numbers was the result of a decision in 2000 to restructure the roles of planners working under the banner of Commonwealth Personal Bankers (CPB).

The bank says the 600 planners in that group in 1999 and 2000 were not involved in full time advisory services but also split their time between other personal banking activities, thus making them the equivalent of 300 full time roles.

Furthermore, the bank states these 300 full time positions are now included in the numbers printed for 2002, and in terms of full time advisers there has not been a significant decline in numbers but rather a concentration of their role.

Tandem Financial Advice is a further example, being the third fastest shrinking dealer. Over the period, AustAdvisers,Lynx Financial ServicesandPartnership Planningwere merged to form Tandem as part of a more strategic model of planning and marketing within ING, at a cost of planner numbers. This continues a pattern which first emerged when Partnership Planning was formed from Adviser Investment Services and Bleakleys, a move which resulted in a drop in planner numbers of more than 200.

Compliance is also starting to play a more important role in the estimation of large dealer groups, according to Coplestone, with more only wanting to associate with advisers “that want to play by rules” due to the liability attached to non-compliance, signalled clearly by the Australian Securities and Investments Commission.

Coplestone expects this backlash against scale to continue, possibly causing more contraction within dealer groups.

“Growth will be stymied, as dealers realise bigger is not better and it is more about having profitable distribution,” he says.