The top dogs still have plenty of bark

By now the financial planning industry has digested the recent Australian Consumers’ Association (ACA) survey on the quality of advice. Regardless of its findings and many planners’ opinions of the survey, it did raise at least one important issue in the mind of the public — who owns financial planning?

For many years this has been a question the industry has been covering, withMoney Managementconducting its own research into the question as far back as 1999 with the launch of the inaugural Top 100 Dealer Groups report. At that time it became clear that institutions had made big moves into financial planning and already started to buy up practices and whole planning groups, as well as building planning divisions from scratch.

This was further confirmed with the inaugural Top 50 Distributors report in 2001, which for the first time comprehensively listed the actual owners of the planning groups who made up the Top 100.

Back then, the top five owners of distribution held 6,676 planners between them with only three groups —AMP, the Commonwealth Bank and National Australia Bank — holding more than 1,000 planners.CountandAXArounded out the top five with 949 and 896 planners respectively.

In 2002 the top five owners of distribution held 6,852 planners between them, while the remainder of the Top 50 held 6,211.

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Looking at this year’s table the top five owners of distribution all hold more than 1,000 planners with a combined total of 7,765 planners between them. Compare this with the remaining 45 entries in the table, which collectively hold only 6,010 advisers.

Where the table becomes even more interesting is the way the numbers drop substantially outside the top five positions and fall below 500 planners by number 10, below 200 by 14, with a slightly longer drop to below 100 by position 24.

In fact, the sudden drop from around 500 planners to just over 200 indicates the polarisation of the market identified in last year’s Top 50 report has continued, with the large scale groups usually held by large scale players and those groups with less numbers, particularly below the 100 mark, held by directors, advisers or a combination of both.

It would be easy to conclude from these figures that there has been a move from the groups lower down on the table and to a point this is the case, but the large institutions have also been recruiting heavily and much of the increase can be attributed to organic growth.

This growth in large groups would in turn emphasise the difference in adviser numbers across the table, confirming that banks and funds management groups, now often the same creature, are building large scale planning groups from a range of sources.

But they are not having it all their own way with the third and fifth ranked groups,Professional Investment Services(PIS) andCount Financial, held by private and listed interests respectively, still holding their place in the market and building on established positions.

Count has moved from 949 advisers in the 2001 report to 1,085 this year, while PIS has rocketed from 466 to 1,284 in the same period indicating there is a place for large scale, independently held financial planning groups in Australia.

But the presence of Count and PIS raises some interesting questions about the state of dealer group ownership. The ACA, in criticising the quality of advice in its recent survey, decried the fact that the banks held more than 50 per cent of financial planners.

However, the numbers in both the Top 100 Dealer’s report and this year’s Top 50 contradicts this, with the banks holding around 35 per cent of the advisory industry, with most of those held by the big five alone — National Australia, Commonwealth, Westpac, ANZ and St George.

Fund managers hold just under 34 per cent, with listed and privately held groups accounting for 30.5 per cent. Broking houses account for the rest.

There has been an increase in bank ownership from about 22 per cent four years ago, but it appears the banks taking over half of financial planners is still some way off.

The table also brings together a number of planning groups that are owned — partially or fully — by some form of institution, but some still make their way in the world under their own banner.

These include groups such asGodfrey Pembroke,Ipac,Tynan Mackenzie, Bridgeport andCameron Walshe.

What is more important is that these groups are also afforded a measure of autonomy and, in cases such as Ipac, are even regarded by their parent group, AXA, as a source of new ideas as well as revenue. This was highlighted in news last week that AXA would consider the Ipac planning model for use in itsCharter Financial Planningdealer group.

In fact, these groups would argue that having a large institution involved in their ownership has not changed their ‘independent’ status, which in turn opens up the debate about what really is an ‘independent’ dealer group.

Aside from the stated legal position as defined by theAustralian Securities and Investments Commission(ASIC), the question the planning industry will have to face up to is whether independence is a state of mind or a state of being.

It is also here that the banks and fund manager owners of dealer groups can find a middle ground for the advisers who operate under their flag of ownership.

Understandably these owners desire a return on their investment in the dealer group, but it is no great secret that planners do not like to see this return generated via forced sales of the parent group’s products or services.

The results of this are understood — planners tend to grumble, then they leave and often take a substantial book of business with them. This is a trend that the Top 100 report has borne out since its inception in 1999.

The institutional hold on the industry is unlikely to be broken through this in the short-term, but the growing gap between large-scale, institutionally-owned groups and true independents and boutiques is widening.

Whether this will become a chasm in next year’s Top 50 remains to be seen due to the level of change still going on in the industry as a result of the Financial Services Reform Act (FSRA).

But consider this, experienced planners seeking a new home are likely to be attracted towards boutiques and those groups servicing the upper reaches of the market.

And after the pasting many dealer groups from the big end of town received in the ACA report, the day of the independent boutique may be just around the corner.