How accessing capital impacts the planning market

The degree to which financial planning firms can access reliable capital backing is starting to drive long-term changes to the industry, Mike Taylor writes.

It is no secret that the commercial models underpinning financial planning businesses are still evolving in the wake of the Future of Financial Advice (FOFA) changes, the impact of the Life Insurance Framework (LIF) and the substantial outlawing of revenue sources such as volume rebates and shelf space fees.

While dealer groups are still seeking to evolve their underlying commercial models, the major banks are reflecting on the comparatively modest returns on investment (ROI) they are extracting from their wealth businesses, with National Australia Bank (NAB) having sold 80 per cent of its insurance business to Nippon Life and ANZ currently scoping out the sale of its Australian wealth assets.

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At the same time, AMP Limited’s results have continued to disappoint its shareholders leading it to look to China and to seek to refine its financial planning business to find a way through.

All of which represents a significant change of attitude and fortunes for the financial planning industry in just the past five years because as recently as 2012 the acquisition of Count Financial by the Commonwealth Bank saw some of the other major banks and dealer groups enter into a bidding war to attract key Count financial planning practices. Some of the sums paid in that exercise must now sit uncomfortably on the balance sheets of the successful bidders.

But none of this means there are not still investors keen to gain a stake in the Australian wealth management market and the proof of this resides with the number of parties which have displayed interest in the ANZ wealth assets.

The other proof of this is the strategy being rolled out by Paul Barrett in association with his Italian backers Azimut and, to some degree, the strategy outlined by AMP Limited in its Investor Strategy Day held in late May.

What Barrett’s AZ Next Generation Advisory is doing is not so much revolutionary as timely. It is based on developing a presence the equal of most existing financial planning dealer groups by giving selected financial planning firms the capital they need to grow with the strategic payback to AZ NGA being equity, alignment and, in some cases, ownership.

Anyone who has spoken to those developing and running a financial planning business will understand the attractiveness of Barrett’s AZ NGA model, especially if they also understand the costs and conditions of extracting funding from the banks.

Little wonder, then, that in outlining its wealth management strategy last month, AMP signalled that it, too, would be prepared to extend the degree to which it provided equity to businesses operating under the umbrella of its licenses.

There is an increasing realisation that it takes money to grow in the wealth management sector and those willing to make the necessary investment are already demonstrating that the change is likely to be ongoing.

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