Top 100 - Institutions grab a bigger slice of pie

Until today, there has been no in-depth research published on the state of play in the financial business. Money Management commissioned KPI Research to inves-tigate Australia’s 100 biggest financial planning dealer groups to create a snapshot of the financial planning industry.

Until today, there has been no in-depth research published on the state of play in the financial business. Money Management commissioned KPI Research to inves-tigate Australia’s 100 biggest financial planning dealer groups to create a snapshot of the financial planning industry. Some of the findings of the Money Management Top 100 survey will surprise even the most hardened industry analyst, as Stuart Engel discovered.

Whether they be banks, fund managers or life insurance companies, Australia’s fi-nancial planning industry is dominated by large financial institutions.

These are not the fund managers and service providers whose banners you see hanging up at financial planning conferences. And they are not the names on the business cards of the business development managers knocking on your door to drum up business for the institution they represent.

These are the owners of the big financial planning groups. In fact just under three quarters of the 11,400 financial planners covered in the Money Management Top 100 survey are part of a dealer group owned by a major financial institution.

KPI Research, the research group commissioned by Money Management to com-pile the Top 100, estimates that the biggest 100 financial planning groups represent more than two thirds of the estimated 15,000 financial planners operating in Aus-tralia. It follows that more than half of all financial planners operate under licences owned by either banks, fund managers or life insurance companies.

Half of the planners in the Money Management Top 100 belong to dealer groups owned by life insurance companies or fund managers while a quarter belong to groups owned by banks.

What these numbers show is the pace at which the big end of town has moved into the financial planning business. Of course everyone remembers the recent purchase of Godfrey Pembroke by MLC or the purchases of KPMG Financial Services, Pact and Securitor by St George Bank, but few realise the scale of institutional owner-ship.

As KPI Research director Leo Wassercug puts it; “I don’t think people realise how much distribution has been bought by the institutions.

“The big moves over the past couple of years have come in the form of acquisi-tions while the 1980s saw institutions building up their own networks organically.”

And anecdotal evidence suggests there will be further buyouts in the near future.

“While we were circulating at the recent FPA conference, the word was that the chequebooks are still open,” Wassercug says.

Fellow director and former Godfrey Pembroke senior executive Tom Collins says the people behind the large dealer groups are often in the dark when it comes to awareness of the size of competing firms in the market.

“When I was at Godfrey Pembroke, I thought we were about five or six in the mar-ket. The survey shows they are in fact at 26,” he says.

The jury is out on the motivation for the purchases of financial planning groups by institutions. The institutions say they are looking to cash in on the phenomenal growth in demand for financial advice while the conspiracists claim the institutions are looking to build distribution channels to sell their products through. It would certainly be true that 20 years ago, the emphasis for agents was to sell the institu-tion’s products, however, the talk today is that it doesn’t matter whose products you sell, it is the margin that counts.

Whatever side is correct, it is evident a new strategy is emerging in how institu-tions are servicing their immense client bases. Banks and financial services groups have huge databases of clients and former clients who are ideal leads for financial planners. And with the huge growth in data mining, it is now possible for institu-tions to time when they market products to their clients based on age or life events such as having a child or buying a house.

Institutions are looking to segment the total market and position a financial plan-ning brand to cater for at least three levels of wealth. So when St George purchased KPMG, it filled the vacant spot for a truly premium financial planning arm to add to their 1997 purchases of Pact and Securitor which both aim to service the middle ground while the bank-based St George Financial Planning aims at the bank coun-ter customers.

St George are not alone in following this strategy. All the major banks have seg-mented their planning arms as have the major life insurance groups.

Another factor hastening the transfer of ownership from individuals to large insti-tutions is the aging of the group of entrepreneurs who blazed the trail of financial planning in the 1970s and early 1980s. These pioneers are starting to have thoughts of retirement and are looking for the best possible price for their business. You only need to look at the sale of Godfrey Pembroke following the retirement of founder John Godfrey. The recent announcement by Count founder Barry Lambert that he is to list Count on the ASX is also evidence this trend as is the sale of Re-tireInvest to Mercantile Mutual from Le Fort just years before the retirement of founder Tony Muston.

The Money Management Top 100 survey found that just under half of the bigger financial planning groups were founded in the 1980s while a further 5 per cent were founded prior to 1980.

While institutions continue to bite into the share of the market previously taken by privately owned planning groups, accountants are also making their presence felt in the market. One in five planners in the Money Management Top 100 dealer groups are accountants — a figure which is sure to grow given the mounting interest shown by accounting associations.

And accountants are not the only group eying the market. Stockbrokers, superan-nuation funds, actuarial firms and even lawyers have stuck their toes in the finan-cial panning pond. A full round-up of the success of these moves follows in the coming pages.