Survival of the fittest

dealer groups financial planning amp advisers recruitment global financial crisis fee-for-service PIS amp financial planning advice commonwealth financial planning dealer group financial services industry financial adviser

2 August 2010
| By Caroline Munro |

The top dealer groups in the country have remained resilient in a tough market environment, as shown by Money Management’s Top 100 Dealer Group statistics that have been compiled by DEXX&R. Most of the top 10 have grown in adviser numbers and falls have been put down to the consolidation of adviser bases as dealer groups drive for quality over quantity. Most dealer groups are also steadily recovering funds under advice (FUA).

The statistics reveal that AMP Financial Planning is in pole position in terms of financial adviser numbers, taking over from Professional Investment Services (PIS), which is down by about 130 advisers since last year. The fall for PIS is dramatic, considering it has enjoyed the top spot for the past four years. However, managing director of Professional Investment Holdings Graham Evans says that the drop was due to a weeding out process over the last year, which has seen PIS say goodbye to about 300 advisers.

AMP has benefited greatly from PIS’s drop in terms of the rankings, but this does not take away from AMP’s own efforts to reach the top spot. And it looks like AMP will maintain momentum as it continues to adapt in response to the rapid evolution of the financial services industry.

Pole position

AMP has finally taken over from PIS in terms of adviser numbers since it last held the number one ranking in 2005, having gained 75 advisers since last year. AMP appears to have taken advantage of increasing consolidation in the sector, leveraging off its Horizons Financial Planning Academy initiative and its early transition to fee-for-service. A new initiative is its pilot off-street Financial Planning Centre, recently launched in Parramatta, which is aimed at making advice more accessible to the public. AMP hopes the initiative will also provide an alternative for self-employed financial advisers who are either battling to cope with running their individual businesses in a rapidly changing environment or are looking to get a foot in the door.

AMP Financial Planning managing director Michael Guggenheimer says this is just one of the many initiatives AMP has implemented to achieve its aim of providing more advice to more Australians.

“Growth is a really important part of making sure we are more relevant to consumers, and therefore provide more opportunities to consumers to seek the advice they require,” he says.

Guggenheimer says AMP has worked very hard over the last few years to attract quality financial advisers and, while some advisers have left over the last year, its attrition rate is low.

“We see that we have good programs to ensure that people who join us are mentored and coached, so that they get all the possible opportunities to be successful in the network,” he says.

Aside from the Financial Planning Centre, Guggenheimer says AMP’s focus over the next few years includes a number of activities aimed at increasing its distribution reach which involves maintaining the momentum of Horizons and utilising recruitment specialists around the country. The recruitment specialists are not only tasked with sourcing and attracting quality advisers but also identifying geographical areas where advice is needed.

Quality is what counts

Whether they’ve increased in adviser numbers, or are down on numbers from last year, one thing that most of the top dealer groups interviewed agree on is that there is an increased focus on quality as opposed to quantity.

Evans says the dramatic drop in numbers PIS experienced over the last year was due to a process of removing advisers that were not paying their way, were not serious about being advisers on a full-time basis, and were also not comfortable with the increased education standards that the group was implementing.

He says the majority of the lost advisers were not advising on a day-to-day basis and saw advice as a subsidiary service — similar to the role of accountants. Evans says that while the transition to fee-for-service is part of this process, it is much more than that.

“This is more about moving into professionalism and the requirements of working in a professional environment, and this is going to be a struggle for some people,” he adds.

Count Financial, which sits at third place on the Money Management rankings, has also lost advisers over the last year — although the losses are small in comparison. Managing director and chief executive Andrew Gale also points to a drive towards increased professionalism and productivity as the reason.

“In some respects, the number of advisers isn’t necessarily the best measure in terms of how a dealer group is going overall,” he says, adding that the top 20 to 40 per cent of advisers within a dealer group tend to account for a large portion of the overall business performance. He attributes the drop in numbers to a greater focus on quality, professionalism and productivity, which at the lower end of the spectrum has resulted in advisers either choosing to leave or being let go by Count.

“It’s really a focus on us wanting to work with those practices and advisers who are serious about the financial advice side of the business,” says Gale.

Millennium3 enjoyed a jump of 63 advisers this year and sits in fourth place. Managing director Darryl Foster says the key to success has been transparency and commitment shown to their advisers. But he asserts that Millennium3 will continue to be on the lookout for quality advisers, stating that its scale, its investment in organic growth, and therefore the increase in its value proposition, will only go towards attracting more advisers under its umbrella.

It’s good at the top, but…

The dealer groups at the top are smiling because they have proved to be resilient in a difficult market, but volatility is one of the things that most agree is against them at the moment.

Macquarie Equities Limited only just snatched the top position in terms of FUA from AMP, moving up from second place.

“Having reviewed the business performance during the past year we have achieved a number of successes, which is an important achievement in a year of economic uncertainly and regulatory change,” says Eric Schimpf, head of Macquarie Private Wealth.

“A challenge the industry as a whole faces is the post-global financial crisis [GFC] investment environment, which has created turbulent markets and economies that we need to navigate. Access to quality research and expertise, and a stringent approach to risk management, will continue to help us guide our clients through this period,” says Schimpf.

Commonwealth Financial Planning sits in third place in terms of FUA and also enjoyed a jump in adviser numbers of 56. But general manager of the Colonial First State Advice Business, Paul Barrett, says you can’t experience a boom/bust cycle like the one we saw during the GFC and expect that a year later everything will return to normal.

“There are always long-term consequences of boom and bust cycles, and we’ve just got to make sure that we don’t get ahead of ourselves, but continue to focus on needs-based advice for consumers and take a long-term view,” he says. “We’re pretty happy to be a growth business in a very tough year.”

Evans says one of the things to remember in volatile times is that most advisers are small business people, whether they are boutique licensees or authorised representatives under a large dealer group like PIS.

“Like most small businesses in Australia, they are struggling,” he says. “I think what is working against them at the moment is their ability to continue on during these difficult times. They’ve still got to get out there and get clients, and they have to try their hardest to get client sentiment in the right direction to invest.”

Surprisingly, opinion is divided over whether regulatory reform is a burden. Schimpf, Evans and Barrett agree that industry reform is an opportunity for which they are well placed.

Gale says while Count is also well placed for industry change, both investment markets and regulatory change are holding them back a bit. He says the important thing with regulatory change is to maintain dialogue with the public policy makers and Treasury to ensure robust and good outcomes.

“We have a fair idea of what those changes need to be, but it depends on the exact detail of the regulatory changes,” says Gale. “We’ve got a clear idea of how we would respond, but we’re not going to absolutely commit ourselves until we have greater certainty around the detail.”

Guggenheimer says the challenge for them at the moment is managing perceptions in light of the various proposed reforms.

“In the evolution of anything, the challenge is making sure people understand the context of the change and the strategic logic of the change, and are therefore onboard with that change,” he says.

Future focus

Despite the challenges presented by regulatory change and volatile markets, the top dealer groups have been proactive, with a number of initiatives in the pipeline.

As discussed above, AMP has implemented a number of initiatives aimed at extending its distribution reach.

A number of dealer groups are investing in organic growth, while also keeping an eye open for opportunities as the industry experiences increased consolidation.

PIS is keen to take advantage of increased consolidation to rebuild adviser numbers by picking up what Evans describes as “independently minded” advisers.

“We’ve been fighting a whole lot of battles for that independently minded adviser, and our view is that our future rests with being that answer to the marketplace for people who have that sort of approach, and don’t want to be tied into a major institution,” he says.

Gale says the companies with the scale will be obviously able to take advantage of consolidation, but organic growth is more of a focus for them.

“As we are one of the larger and financially strong operators in that area, and a listed company, we believe we are positioned to capitalise on some consolidation opportunities,” he says.

“We’ll obviously continue to attract practices and new advisers. But a lot of Count’s growth will actually come from working with our existing practices and advisers, in terms of the growth initiatives that would make sense for them.”

Millennium3’s Foster says scale helps in a market like this, because it is bigger dealer groups that have the buying power to invest in systems and resources, which create value added services for their adviser bases.

“We’ve developed a lot of things on the risk, fund and training side, and spent quite a bit of money over the last two years doing that,” he says. “We invest that back into the business because our recruiting ability is based on the services we provide.”

Schimpf says a lot of investment in Macquarie Private Wealth will go towards internal initiatives, such as technology upgrades and expanding their investment offering to incorporate new investment ideas, different asset classes and wealth creation opportunities. He adds they are also looking to continue development of training programs for all staff across all segments of the advice experience.

Barrett says the reason Commonwealth Financial Planning has been able to consistently grow and consistently perform is because of the focus on an organic growth strategy.

“We’ve been able to invest in people, infrastructure and the advice process,” he says. “That has been the consistent theme for the past 12 months, and will continue to be.”

Barrett adds that the advice area in particular has been a strong focus, because it comes down to improving the efficiency of the advice process, improving service and customer value propositions, and innovation to ensure customer needs are met.

“This is where I think you’re going to see a trend towards more defined scoped advice in the Australian financial planning industry,” he says. “That trend has already started and advice will be delivered face-to-face, via the internet … there’s going to be a range of ways to deliver modular advice.”

Gale says that while Count is already mostly fee-for-service, he feels there is a lot more work it can do in terms of the various fee models. He says Count is also looking to assist advisers in terms of the different value packages for clients, ranging from the simple end of the advice spectrum to more complex areas of advice.

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