Struggling financial planning practices out of options

Financial planning practices are reluctant to admit they need help with their cash-flow problems and are not working with their dealer groups to solve the issue.

Snowball Group managing director Tony McDonald said financial planners were fighting to lower their expenses to get through the financial crisis because they weren’t efficiently organised and their cash flow was being affected.

“I think they’re scratching their heads as to what on earth they can even do about it. The solutions aren’t immediately obvious to them,” he said.

The traditional dealer group financial planning structure was under pressure and adding to the problem, McDonald said.

“The dealer group sits there and says to the financial planner, 'Here’s a licence and here is the Approved Product List, you can do what you want with that',” he said.

“In that model there isn’t a very close connection between the dealer group and the financial planner. Their interests aren’t necessarily aligned ... because they’re not aligned around working together to achieve economies of scale.”

McDonald said while the value of dealer groups is in achieving better organisation and economies of scale, some financial planning practices are not sharing in the benefits.

Malcolm Arnold, the national manager of NAB Financial Planner Banking, said many financial planning practices were focused on profit margins and did not understand that consistent cash flows were an integral part of the business.

Many financial planners were too proud to admit they were having problems with their cash flows and a lot of them were suffering stress from not wanting to “raise the flag” and get some help, he said.

A NAB survey of business cash flows in February this year found only 22 per cent of financial planning practices have received help managing their cash flow.

NAB has been receiving a lot of requests for help from financial planners regarding how to manage their cash flows during the downturn. Most practices had profits of 30 per cent, which had been wiped out by the market in six to 12 months, Arnold said.

However, some dealer groups were being very active in helping their financial planning practices manage their cash flows, Arnold said.

Stuart Abley, head of Consultum Financial Advisers, said his dealer group was doing a lot of business practice management with their financial practices focusing on financial health and how they operate.