Stability drives growth

The 2005-06 Top 100 dealer group survey suggests the sector gained slightly more advisers than it shed during the year, confirming its ongoing recovery in the wake of the traumatic introduction of the Financial Services Reform Act (FSRA).

This year’s survey revealed an overall gain in planners of 305 to a total 14,022, up from 13,717 in 2004-05, during which 475 planners were added across the 100 groups.

These figures compare to the 2003-04 survey, which revealed as many as 1,200 planners were shed as a result of the introduction of the FSRA in March 2004, due mainly to the onerous compliance demands.

Survey co-ordinator Mark Kachor, director of research house Dexx&r, says the planner population is “becoming very stable, compared to 2003-04, when at times we didn’t even know if we would find 100 dealer groups to make up the survey”.

Kachor says there wasn’t any “cataclysmic event in 2005-06 to trigger a major exodus of planners, but then again you’re not going to find that occurring every year”.

He predicts that next year’s survey will again reflect a stabilising sector.

“Adviser numbers per group may change, as they have done fairly significantly this year, but the total number won’t increase significantly.”

Stabilising influences

A key reason for the static overall adviser numbers, Kachor says, is that narrowing margins are driving institutionally-owned groups, which dominate adviser number tables, to recruit from each other.

“There are significant costs and time to establish planners from the ground up, when they don’t have a client base. You have to remember that an increasing amount of planner revenue now comes from an established asset trail.”

An aligned reason is a growing trend for planners to grow out of the bank-based groups and into their ‘independent’ networks, which are widely perceived as less managed and structured.

“These vary in the extent to which they control their recommended lists, and how they structure their reward system, which is inevitably going to encourage advisers to move between groups.”

Growth strategies

However, there will “always be groups with an aggressive growth strategy”, according to Kachor.

This is reflected in some strong individual adviser increases in the middle rankings of this year’s survey, notably at Suncorp,which added 97, Bridges up 45, and ANZFP with an increase of 44 advisers.

“Often an aggressive growth strategy comes hand in hand with either having a very good adviser offer, which is a good range of service and competitive pricing structure,” he says.

Ironically, the growth in advisers in this year’s survey is least reflected in the top 10 dealer groups, despite adviser totals here increasing last year in line with the broad survey.

There were 6,780 advisers in the top 10 dealer groups this year, compared to 6,578 last year, notwithstanding that there was one change in the top 10 this year — Millennium3.

New order

However, apart from three exceptions — Millennium3, PIS, and Westpac — all of the top 10 groups shed advisers this year, losing 159 advisers among them.

ING-owned Millennium3 added 213 planners, benefiting from its purchase of Synergy Advisory Services from Challenger Financial Services in November last year.

It also includes 135 advisers added by Professional Investment Services, which leads this year’s Top 100 survey, and 7 advisers added by Westpac Financial Planning.

The individual falls in the top 10 are in line with a consistent theme to have emerged from interviews with industry heads for both the 2004-05 and 2005-06 surveys — that they plan to grow by productivity gains rather than by increasing adviser numbers.

It’s perhaps a sign of the times that many of them claim to be developing advisers internally as part of this productivity drive, while suggesting others are buying their planners externally.

Organic growth

PIS managing director Robbie Bennetts, for example, attributes much of the group’s planner growth last year to recruitment through a PIS in-house development program.

“The aim of our course is essentially to help paraplanners step up as financial planners.”

Bennetts says a lot of PIS recruits are graduates within the accounting practices it is involved with, and making the change from being accountants to planners.

He says, by contrast, that “so many dealer groups buy their financial planners from other dealer groups, and that’s where they get their growth from”.

Bennetts is projecting PIS planner numbers to grow by between 50 and 70 over the next 12 months, and also for PIS to grow by more than 100 practices.

“We’re anticipating good growth from what we call our wholesale area, where there are always boutiques that will pay us part of their fees to provide services to help them grow their businesses.”

Bennetts says “planners are increasingly breaking away from institution-owned groups to operate as boutiques with their own licences under the umbrella of groups such as PIS”.

“It gives them a strong voice in the marketplace because we have economies of scale, off which they can piggyback very cheaply.

“For example, we provide full-blown commission software to run a dealer group for $600 a year plus GST.

“This has to be very competitive for them, considering we spend $100,000 a year on ongoing development of that system.”

Productivity gains

The loss of 21 planners in 2005-06 is in line with an AMPFP forecast in the 2004-05 survey of “single-digit” annual growth in adviser numbers in 2005-06, according to AMPFP chief operating officer Neil Macdonald.

AMPFP’s planner strategy is one of “improving productivity by getting your business structure right”, Macdonald says.

“It isn’t about how many planners we have, but about getting the number of practices right.”

He points out that while AMPFP, which fell to second place in the 2005-06 survey, experienced a “relatively small fall” in planner numbers, it shed 87 practices during the year, down from 944 to 857.

“This indicates that a lot of our planners who were sole traders have now opted to work in a practice with one or two other representatives.”

AMPFP operates differently to “most of our competition, which basically just recycles advisers as a method of growing the business”, Macdonald says.

“We have the capacity to recruit suitable people in other areas within the AMP group, and help them eventually to become authorised representatives in their own right.”

Count managing direct Barry Lambert expects the major institutionally-owned groups will “continue to buy advisers in future, although perhaps not as much as in previous years, because they never learn that you can’t own them”.

Recycling planners

“I think the planning practices will continue to go to the major institutions, because they are going to pay money for them, while the individuals within these will recycle themselves.

“Advisers are a bit promiscuous in the way they will move about the minute they can get a better deal somewhere or decide they don’t like institutions and opt to go off on their own.”

Lambert says Count, by contrast, is “trying to grow our business in an orderly way, with the emphasis on quality, and to drive productivity from an efficiency point of view”.

He predicted that Count’s planner numbers would fall a bit further in 2006-07, to add to the 51 planners it shed in 2005-06, largely as a result of “poor adviser compliance”.

However, he said Count actually “has 250 or so people in our ProfitPlus (subsidiary), some of whom we intend to migrate across to Count in due course, although we haven’t got around to actively marketing it”.

Recruitment targets

ANZFP general manager Mike Goodall says the group is trying to focus on steady sustainable growth in advisers, while at the same time increasing productivity.

“We’re looking to grow to what we think our natural weight is — about 450 planners — by 2008.

The group’s future recruiting model is likely to be weighted toward internal ANZ staff than external advisers, Goodall says.

“There are 31,000 people in the bank, many of them with finance degrees and an interest in a career as a planner — that’s a great recruiting ground.”

He sees the adviser market tightening up significantly over time.

“I often have a quiet chuckle when I see dealers saying they have very ambitious adviser recruiting targets. The reality is good planners are in really short supply at the moment, and it’s only getting worse.”

One reason, he says, is that “there are probably more planners going out of the industry now than going in, partly because we’ve got people who are baby boomers in the sector who are retiring”.

“There is also very little succession planning going on in recruiting, which is why the industry talks about it ad nauseum in the non-institutional space, and on the other hand the only real nurseries left are the banks.”