Doubts grow about dealer group model

The failure of South Australia dealer group Financial Planning & Life (FP&L) has cast doubt on the viability of the fixed fee, low-cost dealer group model, according to some of the planners involved in it.

FP&L went into voluntary liquidation last month as a result of the aftermath of a fraud perpetrated against it by an authorised representative between 1998 and 2005.

Former FP&L director Geoff O’Neil — currently a director of advice firm AdvantageOne, a former member of FP&L — refused to comment specifically on FP&L.

However, O’Neil told Money Management that he thought low-cost dealer groups would be “unable to lock in a fixed fee (which are available in the marketplace from as little as $670 per month) for forever and a day”.

“It would need to be a fee reviewed in accordance with [the consumer price index], most likely.

“It’s a matter of ensuring the services that you provide can be funded by that fixed fee, and that if you increase your services, [you’re] able to increase your fee.”

O’Neil also believes there are currently some dealer groups that are “pitching a low-fee model in the hope they can get volume, and that volume itself will deliver the bottom line”.

“It won’t work, and it is fraught with danger (for the business),” he said.

Former FP&L authorised representative Frank D’Alessandro said he believed it was “probably still viable to run a low cost, fixed-fee dealer group, but I don’t think you will make a lot of money out of it”.

D’Alessandro, who has been operating under his own Australian Financial Services Licence since last month, said this potential profit drawback went “hand in hand with the higher risk component” inherent in a low-cost model, as opposed to a full-service model.

“The question is whether a fixed fee is commensurate with the extra risk you take in authorising advisers who might not do the right thing [in relation to] the compliance requirement of the dealer.”