Demand for financial planners within Australia looks set to increase by 55 per cent over the next five years, according to the latest research by the Financial Planning Association (FPA).
In a survey of its members conducted in August 2008, the FPA revealed a growing shortage in the profession of not only financial planners but also qualified paraplanners. It is estimated the demand for paraplanners is expected to rise by 72 per cent over the next five years.
The surge in demand for financial planning professionals has been attributed to fluctuations in the current economic climate. With uncertainty and volatility in global capital markets, it seems a greater number of consumers are recognising the need for expert advice.
This skills shortage is expected to be problematic for Australian financial planning dealerships. One of the key methods of growth for dealerships is through strategic acquisitions.
The acquisition of a quality firm can provide a dealership with numerous benefits, including an increase in market share, tactical synergies, broader geographical coverage and an increase in sales growth.
The shortage of qualified personnel has, however, led to a seller’s market in which many dealerships are struggling to attract quality acquisition targets and retain key staff.
In the current market, price is no longer the most important deciding factor in the sale of financial planning practices.
Practice owners are demanding more from their dealerships.
According to a survey conducted by Centurion Market Makers, 78 per cent of practice owners believe that cultural fit is vitally important. Sale negotiations are more likely to fail where the two parties are perceived as being culturally disparate.
One method of facilitating cultural fit and attracting practice owners is by offering them equity in the dealership. In this way, practice owners and senior planners are able to share in the future growth of the dealership.
Earlier this year, leading dealership The Salisbury Group (TSG) offered its senior planners a 15 per cent share in the equity of the group.
Offering equity in the dealership has provided TSG with a competitive advantage, as explained by its chief executive Mark Euvard: “The alignment of the dealer group’s business interest and those of its advisers through the equity offers has significantly enhanced TSG’s marketplace offering and potential for the future.”
The majority of equity offerings to financial planners by dealer groups take the form of an Employee Share Ownership Plan (ESOP). In addition to aligning the interests of the dealership and its planners, there are many reasons why a dealership may wish to implement an ESOP, including to:

•  provide a reward for high-performing staff;
•  ensure the delivery of objectives;
•  improve the efficiency and productivity of member practices; and
•  retain key planners and their practices.

There are a number of different ESOPs available to Australian businesses, each of which has its own advantages and disadvantages. Generally speaking, however, ESOPs can be classified into two categories, qualifying plans and non-qualifying plans. A qualifying plan provides certain tax concessions for employees provided it satisfies the requirements of Division 13A of the Income Tax Assessment Act 1936. Non-qualifying plans offer greater flexibility but do not provide the same tax concessions.When considering implementing an ESOP, many dealerships may find that additional issues arise.

For unlisted or small dealerships, compliance issues, legislative requirements and accounting standards that have previously not been a concern may become an issue. It is important to remember when issuing equity to employees that certain accounting standards, taxation laws and regulations, as set out by the Corporations Act, may apply to both listed and unlisted companies.

The specific objectives and circumstances of the dealership should be taken into account when choosing the best plan for the group.
Whichever plan is chosen, it’s clear that ESOPs can provide an effective mechanism for attracting and retaining practice owners.
Moreover, as an industry-wide skills shortage looms, it seems that practice owners are no longer satisfied with an attractive sale price but are demanding more from their dealerships.

Manda Trautwein is the director of Corporate Advisory Services and Bryony Vandepeear is a technical writer at William Buck.