Why did Ray White fail in wealth management?
The Ray White Group’s eight-year battle to break into the Australian financial advice market is over. How did it ultimately fail after so many years trying to succeed?
Loan Market chairman, Sam White, has confirmed that Wealth Market is no longer in business. The dealer group was wound up in March of this year.
So what went wrong?
A new offering
On 17 September, 2014 Ray White Group announced that its mortgage broking business, Loan Market, was expanding its offering with a financial advice business called Wealth Market.
This was big news in 2014, a year when financial advisers had their eyes firmly trained on the Financial System Inquiry (FSI). The FSI, or Murray Inquiry as it has now become known, would be overshadowed by the Hayne Royal Commission four years later.
However, in response to Murray’s recommendations, the coalition government promised to introduce legislation by mid-2016 designed to lift adviser standards. This led to the establishment of the Financial Adviser Standards and Ethics Authority (FASEA) in 2017.
These events were important because of the significant challenges they created for existing advice practitioners and those looking to enter the profession. Wealth Market was fighting an uphill battle from the start.
It’s also worth noting that Loan Market’s new advice offering was announced prior to obtaining an AFSL, a bold move for a new player in an environment in which it was becoming increasingly difficult to operate.
Yet in 2014 Wealth Market went ahead, without a licence, and led by former Professional Investment Services regional manager Jason Powell. Former State Super Financial Services manager for advice and professional standards, Steven Quine, was hired to head up compliance and risk.
Family business
Wealth Market was pitched as the perfect cousin to Loan Market, Ray White Group’s mortgage broking business. The idea was to cross-sell borrowers into financial advice, whether that be personal insurance or more sophisticated wealth management products.
Sam White made it clear from the start that the group wanted to grow organically, that entering the advice space via an acquisition was out of the question. He told the AFR on 20 September, 2014 that he could afford to take things slowly.
“The beauty of a family business is we can take time," White said. “We do not want to build too fast."
At that time the plan was to have 40 advisers by 2017.
Success in New Zealand
Meanwhile, over in New Zealand the White family was seeing significant success with its Loan Market and Insurance Market brands. In fact, both these brands are still flourishing in New Zealand, where the franchisees sell significant volumes of insurance and home loans.
A key difference between New Zealand’s market and Australia’s is that mortgage brokers are licensed financial advisers in New Zealand.
Financial advice in New Zealand is divided into four categories: mortgage advice, insurance advice, financial planning and investment advice.
As a result, the division between brokers and advisers is not as clear as it is in Australia. Many of these professionals are one and the same, and all of them share an industry body.
“We have had much more success in New Zealand, because many brokers are either qualified to talk about insurance or have that facility in their office,” White said.
“Part of that is the legacy of New Zealand brokers losing their trail and diversifying into life insurance out of necessity. Having said that, the process of selling mortgages and life insurance is far more established over there. You also don’t get 100-page SOAs. It is a lot more customer-focused and easier for the customer.”
These fundamental differences point to the key reasons why the Ray White Group failed in its advice offering in Australia, but also why it believed it could succeed.
As a business proposition, the sale of mortgages, insurance, financial planning and investment advice under one roof makes complete sense. And for New Zealanders, it is very much a reality.
The trouble in Australia, and what ultimately claimed Wealth Market and many others as victims, is the ever-changing and overly-complex regulatory environment that has prevented customers from accessing advice.
Ray White, Loan Market and Wealth Market are part of a family business with deep pockets. As Sam White said in 2014, they were in no hurry to scale when they launched. But it now looks like the White family grew tired of waiting for the environment to change in its favour.
Sam White told Money Management that Wealth Market began communicating with its advisers late last year, letting them know that the business would be wound down.
“We officially wound up in March of this year,” he said. “It was a difficult decision to make. We had some terrific advisers, but for us it was just very difficult running an AFSL in the current regime.”
AUTHOR
James Mitchell
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It was CPA who tried not CA under the now infamous Alex Malley of the naked ceo fame. CPA Advice they called it. I think they got about 10 AR’s in total.
They were going “ to take financial planning “ back. They sure did after losing $15m on it.
The naked ceo is a book about a rogue school boy (Malley who was expelled ) gone good & CEO. It’s still for sale on Amazon and I am told CPA’s get CPD for reading the ludicrous book which is full of good advice for young people like, dream big!
And people think the FPA is bad. Both the FPA and the CFP look like gold standard compared to these accountant clowns.