Two-way traffic in Top 100

This year’s Top 100 dealer group survey is just as significant for what it doesn’t say about the state of the industry as for what it does.

Whereas last year’s research found adviser numbers in freefall over financial services reform (FSR), making for a clear trend, this year’s survey reflects an industry in hiatus.

The survey statistics might just indicate adviser numbers are set to grow during 2005-06 now that FSR has been implemented, but then again they might not. In the 12 months to March this year, 56 of the surveyed dealer groups added advisers, 40 shed planners, and four posted no change.

The Top 100 dealers gained more advisers collectively this year than were shed, but only just. The result is also skewed by a single institution, the National Australia Bank, adding more than 100 dealers across all its groups during the year.

And unlike last year, when the major banks and institution-owned dealers lost more than 800 advisers, this year they lost only 33 advisers.

Overall, the total number of advisers in the Top 100 grew by approximately 6 per cent in comparison to 2004.

Mark Kachor, director of research house Dexx&r which compiles the annual survey, admits to being slightly perplexed by the survey results.

“It’s been an unpredictable year, and you also really can’t predict what the market’s going to do going forward.

“There’s a lot of uncertainty out there as margins are squeezed, prices are falling, and pressure generally increases on the reseller channel.”

Kachor said there are now “signs of life returning to the market, but this isn’t necessarily going to translate into the groups employing more advisers”.

Productivity levels

If any industry trend is emerging, he says, it’s “probably that dealers are getting more work out of existing staff to get more volumes to make up for the drop in margins”.

In fact, most industry sources interviewed for this report plan to grow their businesses by productivity enhancements rather than by increasing adviser numbers.

Greg Kirk, managing director of AMP Financial Planning (AMPFP), the largest of the dealer groups by adviser numbers and funds under management (FUM), is of the majority persuasion, saying there “won’t be anything other than low single-digit annual growth in AMPFP’s adviser numbers going forward”.

He adds: “Our growth will come from productivity improvements in existing practices, due to better practice management support, more customer focus and solving the customer proposition.”

The group posted “significant net growth” in FUM during the year despite falling advisers numbers, according to Kirk. It shed 38 advisers during the year to a total of 1,280, while retaining its position at the top of the Dexx&r survey.

Kirk is sceptical over claims of “excessive adviser growth” by some dealer groups in a market he says is experiencing a shortage of qualified advisers.

“A number of our competitors have said they’re going to grow by 200 or 300 advisers, but it never happens, and that’s because they simply don’t exist.”

Compliance costs

The squeeze on margins suggested by Kachor “hasn’t really played out” in the reduction of AMPFP advisers this year, according to Kirk.

“We’re facing more of a cost hurdle than anything else in running small practices, due to the costs of compliance in this marketplace.”

These costs contributed to an ongoing consolidation of advisers in the top groups during the year, he says, a trend that was also identified by the survey — but, again, only just.

It found, for example, that the big five banks now have 28 per cent of all advisers in the Top 100 survey, up 1 per cent on last year.

Professional Investment Services chief executive Robbie Bennetts believes the consolidation of sector inflows by the large groups also “grew significantly” last year.

“I reckon the big guys — the banks, the insurance companies, AMP, Count and ourselves — must now be close to owning 90 per cent of all inflows.”

Bennetts said the boutiques would now be finding it “increasingly difficult to grow because of the cost of delivering the mandatory services under FSR”.

Post-FSR recruitment

By contrast, Bennetts paints a rosy employment scenario for the survey’s second largest group this year.

“We see ourselves growing by at least 100-plus advisers during the next 12 months and, in fact, we’d be very disappointed if we don’t.”

He explains: “This time last year we were tied up with FSR, but now that all that’s behind us we’re starting to spring back in terms of business and adviser growth.”

The group posted a net gain of 52 advisers last year, up to 1,194 from 1,142, to retain second place in the survey.

Bennetts says most new advisers last year had been recruited through a comprehensive in-house development program launched by PIS three years ago.

“The main aim of the course is to grow our adviser numbers from within our organisation as far as possible by helping paraplanners step up to being financial planners.”

Industry rationalisation

Count Financial Services managing director Barry Lambert predicts a rationalisation of small licensees during the year, due to the cost of compliance and other factors.

He also forecasts an accompanying adviser movement between networks as small dealers “give up their licences to join and rejoin large groups”.

“Good advisers will also be more inclined to jump ship if a small group’s practice and compliance standards are not up to scratch.”

Lambert says Count is “committed to a qualitative growth of advisers rather than increasing numbers simply for the sake of it”.

“I wouldn’t be surprised if our adviser numbers are down in next year’s survey as well, if perhaps by not as many as this year.”

Count shed 57 advisers last year, from 1,000 to 943, making it the third largest group in the survey, the same position it held in the 2004 survey.

Lambert said the group had actually taken on new advisers during the year but these had been recruited into associated group, ProfitPlus, and thus were not reflected in the survey.

“We now have about 200 people in ProfitPlus as part of our new strategy, whereas in pre-FSR days we probably would have let most of them into Count.”

ProfitPlus is where “new advisers implement loans and lending, and only when and if they prove successful at that do we invite them to join Count”, Lambert says.

“FSR training and compliance is simply too expensive to have advisers inside Count if in fact they are not going to get serious about it.”

Increasing revenues

State Super general manager financial planning Terry Reid says he “hasn’t noticed any consolidation of fund inflows or adviser numbers among the top dealer groups”.

“The annual percentage revenue growth of each of our 15 offices around Australia has remained remarkably consistent across over the past few years,” he says.

State Super grew by 22 dealers during the year to 105, taking it to 34th position in the survey, up from 39th in 2003-04.

Reid says the group does not plan to grow adviser numbers significantly beyond the current level, although it is anticipating “solid revenue growth this year”.

“Our growth strategy is firmly about improving the productivity of existing advisers rather than adding advisers,” he says.

Michael Scott, managing director of Total Financial Solution, is a “little unsure to be totally honest” about whether the group would be adding any advisers this year.

He attributes the group’s net loss of advisers last year to “natural attrition as well as price hunting, and also higher standards”.

Total lost 10 advisers during the year, from 118 to 108, and fell 10 places to 31st place in the survey — a far cry from 2004 when it was one of the fastest growing groups.

Scott says the group had a “two-prong attack” in place to grow the business, involving both growth through productivity and adviser numbers.

To this end the group is in the process of revising “every compliance process and standard that we’ve made over the past 18 months, and we’re asking for the buy-in of our advisers”.

He explains: “As this process has grown we’ve got a lot tougher in certain areas of our compliance, but there’s also some areas we’ve relaxed.”

Madison Financial Group dropped to position 94 on this year’s survey last year, from 78th in 2004, as a result of a reduction in advisers to 11 from 18.

However, director Peter Mullens says a “major change of approach and structure” is planned from August, leading to significant growth in revenues and advisers.

Mullens says revenue “declined last year due to fewer advisers, but so did costs, so our profitability has not been affected”.

He says a drift of advisers from large to small dealers is “definitely happening”, adding that he “couldn’t imagine successful small dealers rushing back to big dealers”.

Mullens says another emerging trend is for advisers to move away from entering into commission splits with dealers.

“There’s quite a few advisers now running on the model where they take 100 per cent of their earnings and then are charged by the dealership for provision of services.”