Shake-up in rules of planner engagement

There is some disagreement among recruiters and dealer group heads about the extent to which financial planners are moving between employers.

The dealer group camp suggests it is happening on a relatively small scale mainly within the smaller end of the market, while recruiters see it as more of a widespread issue impacting the whole planning industry.

Tom Hancock, managing director of finance recruitment firm Thomas Hancock Associates, said he is seeing a great deal of planner movement between dealer groups.

According to Hancock, one of the biggest factors impacting the industry at the moment is the ageing of senior financial planners and licensees, with many of them now approaching retirement and considering how to hand on their business.

While he said there are no statistics supporting his view, he said anecdotal evidence told him many smaller planning practices are effectively moving out of the industry, being bought up by middle tier and larger firms.

“This is quite different to the way it used to be; there seems to be a continuing cycle [in the process],” Hancock said.

Some of the factors he identified as affecting this change were the restructuring of larger firms, with many planner employees making what he describes as a “50/50 decision on whether to stay or go”.

The varying depth of products lists offered by different dealer groups is also an issue affecting whether financial planners want to remain with an existing practice or move to another, along with remuneration concerns.

Rather than seeing these trends as either a positive or negative for the financial services industry, Hancock said it is simply an evolution and that dealer groups needed to learn how to adapt.

Retention of staff can be a problem, with principals realising they need to give their employees greater opportunities and grow their business in order to hold on to their employees.

“We’re crying out for more planners in the industry,” Hancock said, suggesting there are few new planners coming through to replace those who are retiring.

Another by-product of the movement between dealer groups is specialist practices that are concentrating on a particular client type, which can see a focus on any group from high-net-worth clients to retirement-age clients or possibly even those wanting to invest for sustainability.

“Over time, planners are going to specialise in whichever area they want to be in,” Hancock said.

Overall though, he is not surprised at what’s happening, describing it as simply a case of “dynamic, commercial forces interacting within the finance industry”, with the rules of engagement changing rapidly.

From a dealer group perspective, Geoff Rimmer, chief executive of Financial Services Partners (FSP), sees it differently.

“At the bottom-end of the quality pool [of planners] there will always be a fair bit of movement,” Rimmer said, but feels that the higher quality advisers tend to remain more static within their chosen dealer group.

He believes there will also be a sector of the industry that readily moves between dealer groups, particularly those who are more transactionally-focused and less interested in providing a full value proposition for clients.

“The sub-$200,000 in earnings level of planner is really fluid, they tend to have a different advice model, with not a lot of resource capability and other staff working for them,” he said.

Rimmer suggests it is probably the more traditional life insurance-based financial planning practices that experience higher staff turnover.

But he felt that while some of these more mobile planners may be chasing higher earnings by moving between practices, he thinks ultimately it ends up disadvantaging them because they miss out on the supervision and the induction that more career-minded planners receive.

He also thinks it can end up reflecting poorly on the individual planner, who may need to explain a sketchy job history.

“If you keep doing it [moving between practices], there has to be a valid reason,” Rimmer said.

It also has implications at a practice level, because when changing licensee they need to inform clients. In this case they need to be careful in ensuring the right decision is made, because there is no going back if the move doesn’t work out.

Looking specifically at the experience of FSP, Rimmer said that everyone pays the same fee structure to the licensee regardless of their seniority within the group.

“That’s probably cost us some recruits, because some planners like to think they’re special, and with some people you can never win that argument [about fee uniformity],” he said.

Stuart Abley, head of Consultum Financial Advisers, agrees with Rimmer and said that he generally hasn’t seen a lot of planners moving between dealer groups.

While reluctant to name a figure, he suggested that only around 10 to 20 per cent of financial planners will move between employers in the next 12 months.

According to Abley: “It says more about targeting quality advisers and being referred to quality advisers”.

He thinks the days are gone where we will see big movements of planners.

Instead of individual planners moving around, Abley believes there is more churn at a practice level, with those in the small licensee space looking to partner with bigger licence-holders to achieve economies of scale.

“The costs of technology, professional indemnity and compliance are a burden that smaller licensees are finding harder to bear,” he said.

“The landscape has changed … five to seven years ago it was very different to today. But for quality financial planning practices, I wouldn’t say there’s heavy movement.”

Matthew Mullins, managing director of finance sector recruiter Jonathan Wren, said he is seeing flows of financial planners at all levels of the industry, ranging from boutiques through to medium-sized practices and the big financial institutions, spanning various specialisations.

He believes that a shortage of experienced candidates is driving this high rate of churn within the sector, estimating that Australia needs around 3,000 financial planners to fill market demand in the next 12 months.

“It’s very difficult to create new financial planners because the good ones are often experienced. You can’t just get graduates and turn them into good planners,” he said.

Because of this, he said we are seeing aggressive poaching of candidates through headhunting of quality staff and networking, leading to spiralling salaries, equity offers in practices and commission-based structures.

“We see examples of this every week. It’s the most buoyant financial planning market we’ve ever seen,” Mullins said.

Jonathan Wren recently conducted a benchmarking survey, and among the findings was the overwhelming message that traditional methods of attracting and retaining staff are not working.

Mullins points to the techniques of print and online advertising, which are often used to attract financial planning candidates, but says these often draw the wrong type of candidates.

He uses the basic assumption that candidates fall into two broad categories: passive and active employees.

Active employees are those who are constantly seeking new jobs and are not looking to remain in any one position over the longer term.

Passive employees are the exact opposite of this, looking to find the right job and remain in a stable environment for a reasonably long period of time.

“These are the planners everyone wants to recruit, and print and online advertising is not the best option to attract them,” Mullins said.

He makes the point that advisers who use the active approach need to be careful that they are moving for the right reasons, warning that “adviser integrity can be diluted by moving around”.

Mullins said that you need to adequately explain to clients why a particular move was made and where the benefit is for them.

For financial planning practices, he advocates that they use the services of professionals who can go into the market and use a combination of discreet techniques and industry knowledge to uncover the good, passive candidates.

But he stresses that the challenge does not end here; retention of staff is also extremely important.

To this end, financial planning practices are placing greater emphasis on staff development, providing market-driven remuneration and rewarding high level advisers.

Mullins also said the larger dealer groups are looking to bring smaller groups under their own licences, offering strong first year salaries in order to help them get established and remain more inclined to stay.

The power relationship between individual financial planners and the groups seeking to employ them are crucial in the current environment.

For the time being, Mullins believes employees have what he describes as ‘situational power’, with the shortage of quality candidates meaning financial planners currently have the advantage as practices fight over a diminishing number of candidates.

However, he warns that this will not last forever.

Mullins said that, true to the boom-bust market cycle, the situation will change. In line with this, his advice to planners is to exercise caution in deciding which organisation to join.