Technology offers only salvation for dealers

One of the most intriguing issues to come out of the Money Management Top 100 survey was the lack of knowledge most dealers have about the key elements of their business — the advisers who use their services.

One of the most intriguing issues to come out of the Money Management Top 100 survey was the lack of knowledge most dealers have about the key elements of their business — the advisers who use their services.

We asked dealers to tell us their gross revenue; the funds under the advice of their advisers; and the number of clients serviced by their advisers.

The vast majority of dealer groups very kindly disclosed most of the information to us to the best of their knowledge. Some dealers were reluctant to disclose their to-tal revenue, but that did not surprise us.

What did surprise us was the fact that most dealers did not have accurate records of the number of clients serviced by their advisers or the funds under advice of their advisers. According to the people who managed the Top 100 survey, KPI Re-search, many of the dealers were making educated guesses when they answered questions on client numbers and funds under advice.

This is no reflection on the business acumen of the people who run these busi-nesses. But it does point to a very interesting development in the nature of the fi-nancial planning industry and the failure of the industry to adapt to the changing environment.

Before understanding how this is the case, it is important to understand the sources of a dealer’s revenue. The main sources are the share of commissions generated by its advisers; the fees charged to advisers; and the share of fees generated by master trusts or wrap accounts operated by the dealer group.

All of these revenue sources are dependent on the funds under advice which is in turn dependent on the number and quality of the clients associated with the group’s advisers.

Ten years ago, dealers had a better grip on their key revenue sources. Advisers sent cheques and application forms to fund managers to invest their client’s money. A commission cheque would then come back to the dealer from the fund to be split between the dealer and the adviser in agreed proportions.

Then came trail commissions, fee for service and master trusts. The waters have become muddied by the many different paths a client’s money now travels before the dealer gets a cut of commission or a fee.

The situation is worse for the long-established dealer groups burdened with out-dated IT systems.

Technology offers the only salvation for dealers. However, the systems developed by technology groups to try to link fund managers, master trust providers and ad-visers have not gained the support of the planning industry. Only now are groups like InvestmentLink and APIR starting to show the same promise they offered about five years back.

If the financial planning industry is to continue to develop at its current astonishing pace, dealer principals will need the tools to have control over their businesses. Without these tools, there are too few checks and balances to stop out of control elements disrupting dealer groups and bringing the industry into disrepute.

Advisers need to work alongside dealer principals, fund managers and technology providers to establish a system for effective communication between all parties.

Only then will the left hand know what the right hand is doing.