Probably the biggest trend in financial planning circles over the past two years has been the plethora of dealer groups, master trusts and investment groups offering advisers equity in their business if the adviser puts their client’s investments their way.
This trend has largely stemmed from a malaise within the financial planning community. Planners are angry that the dealer groups and master trusts that they have so loyally supported over the years have sold up and not left them a cracker. Planners feel cheated that the owners have laughed all the way to the bank while they have walked away empty handed.
And the issue appears to have come to a head over the past six months as rumours of payouts for Bridges and MLC advisers have done the rounds after their respective takeovers by Tower and National. It is also rumoured that Deutsche planners are seeking a significant chunk of the $170 million likely to be paid for its financial planning and master trust business.
The events raise the question of whether financial planners deserve a share of the receipts of sale when a dealer group and master trust puts their business on the market.
For planners, the answer to this question is obvious. Of course they should get a share of the takings. They have been the source of the investment dollars which have built the business so they should get a piece of the pie on the sale. Besides, without their support, the dealer group or master trust is worth a whole lot less than if it has their blessing. If the advisers who belong to the dealer group or support the master trust dessert in droves, it will seriously deplete recurring income and therefore drag down the price of the business.
The sellers of the dealer groups and master trusts see the issue a little differently. They recognise the huge role advisers have in building their business, but they argue that other businesses do not reward their customers when they are sold, no matter how valued they are. For example, do you think Coca Cola would pay out its customers if it ever sold out. They argue that the risk and capital behind the business all comes from the owners of the business and they should receive the capital receipts based on how much of the business they own.
The potential buyers of the business see the issue differently again. They want to know exactly what they are paying for and that includes the level of support from the advisers. Sure the price will be less if the support is less, but it is a judgement as to whether the protests from advisers are sabre rattling or voices of genuine protest.
So do advisers deserve a cut? Probably in the end, the question is irrelevant. Those with the best negotiating skills will generally bring home the bacon.
