Change is inevitable

The Australian financial planning sector has witnessed another difficult year full of turbulence, with fallout from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and its much-awaited recommendations expected to bring inevitable change for the entire industry.

Planners will continue to closely watch discussion around an ongoing process and attempts aimed at dismantling vertical integration, already started by the Commission, and how this will shape the future of the sector.

Also, recent revelations from the Royal Commission seemed to have added a new angle to the discussion over the future of the licensing regime, with a new focus on who should actually “own” a relationship with the client.

On top of that, the Financial Adviser Standards and Ethics Authority (FASEA) has continued its push towards higher educational standards for both current and new financial planners, which was further expected to take a heavy toll on the planner community, pressing many experienced planners to leave the industry earlier than originally planned and forcing others to go back to school.

So, what are the implications of these changes for the top financial planning groups and to what degree have these themes already translated into action?

Despite all this turbulence, this year’s annual TOP 100 Survey proved that the total number of planners hired by the largest financial planning groups stood at 16,140, which means it returned to levels registered in 2012 and 2013 when the numbers exceeded 16,000. 

This also represented a significant change, compared to 2017, when the numbers were in decline and fell by around two per cent to around 14,700 planners, after they briefly grew in 2015 and 2014 to 15,274 and 15,069, respectively. 

Interestingly, the aligned groups, which were owned by the Big Four and AMP, saw a departure of close to 800 planners this year, a much higher number compared to last year’s combined loss of 600 advisers by the same firms, the survey showed. 

According to the Australian Securities and Investments Commission’s (ASIC’s) Financial Adviser Register (FAR), as of the end of July 2018, there were more than 2,000 financial planning groups registered in Australia, which held their own Australian financial services licences (AFSLs) and jointly had more than 25,000 financial advisers.

Of that, the TOP 100 largest financial planning groups reported to have altogether over 16,000 qualified employees to deliver financial advice, while outside of the TOP 100, close to 46 per cent of groups reported they had between two and 10 planners on board.

Further, 39 per cent of license holders had only one active financial planner operating under their licence.

This trend was further supported by the data from Investment Trends, which projected that by 2020 up to a quarter of the financial planners in Australia would become self-licensed as this business model offered more flexibility around determining an investment strategy. 

At the same time, several of the largest financial institutions announced plans to exit or partially exit the wealth management sector.

So, what’s new?

The survey yet again confirmed that AMP Financial Planning continued to top the rankings despite the fact the company saw a 7.1 per cent drop in the overall number of planners to 1,417 this year. 

Also, all the remaining groups operating under the AMP umbrella continued to shed planners with Charter Financial Planning Group registering a 10.4 per cent year-on-year drop and Hillross Financial Services and ipac financial planning posting 4.7 per cent and 14.7 per cent decreases, respectively. 

Since Money Management published its previous TOP 100 survey last year, there have been a couple of significant changes across the major players, with several groups being demerged or sold.

In October last year ANZ announced a divestment of its four aligned dealer groups, which included RI Advice, Millennium 3, Financial Services Partners and Elders Financial Planning, to IOOF. The transaction, which amounted to $975 million, also included the sale of ANZ’s OnePath pensions and investments (P&I) unit. 

At the time of the transaction, IOOF said the move was expected to help it grow and become the second largest advice business by adviser numbers and would, additionally, strengthen its position as the second largest advice business by funds under advice.

According to Money Management’s TOP 100 survey, the acquisition of these four groups would represent an addition of over 600 planners to IOOF’s business, even though none of these groups managed to significantly grow their rankings since last year. 

By comparison, according to Money Management’s survey, all four major AMP-owned financial planning groups altogether had over 2,500 planners.

IOOF reported this year that five of its planning groups were jointly hiring over 900 planners. This represented a 2.1 per cent growth year on- year. Following this, of five of the IOOF groups (Bridges, Lonsdale, Ord Minnett, Shadforth and Consultum) only two groups posted slights drops in planner numbers.

IOOF’s managing director, Christopher Kelaher said in October that he expected that the acquisition of ANZ’s groups would help increase scale and therefore create value from cost synergies. He is also a great believer that there was still room and a future for the dealership model as it offers security to enterprises and shared services.

However, he stressed, this model would continue to evolve. According to Kelaher, the customer security that clients desire comes from a financial institution that stands behind the advisers.

Another big insto which announced a demerger of its wealth management and mortgage broking businesses was Commonwealth Bank (CBA), which said the move would help boost a number of independent wealth management businesses.

CBA’s chief executive, Matt Comyn said the bank’s decision was driven by the “external environment and community expectations” and addressed “the concerns regarding banks owning wealth management businesses”.

Under the terms of this deal, the new demerged business, CFS Group, would include the Colonial First State, Colonial First State Global Asset Management (CFSGAM), Count Financial and Aussie Home Loans businesses, CBA said in June.

However, Commonwealth Financial Planning, a salaried financial advice business, was not part of that change and CBA said the company would remain within its retail banking services division, forming a part of the bank’s consumer financial services business.

According to data from FAR, Count Financial saw a 24 per cent drop in the number of advisers over the last few months and as a result the company was squeezed out of the top 10 largest companies in the TOP 100 ranking.

At the same time, both Commonwealth Financial Planning and Financial Wisdom managed to retain their spots among the top ten groups, although both firms saw a combined loss of 70 planners.

National Bank of Australia (NAB) followed a trend and in May the bank confirmed it was looking at “a move to a simpler wealth offering,” with its intention to exit its wealth management businesses, including MLC. However, the move would exclude JB Were and nabtrade, the bank said. 

NAB said it intended to exit its advice, superannuation and asset management businesses, which were operating under MLC and other brands. 

The possible market options would range from a demerger and initial public offering (IPO) to a trade sale, with an expected separation by the end of 2019, the bank said.

NAB’s largest financial planning group, NAB Financial Planning, continued its downward trend this year after it last year posted a 16 per cent drop in overall financial planner numbers. According to the figures from FAR, it slashed close to 50 planner jobs, which resulted in its drop from number six to eighth in the overall TOP 100 ranking.

As far as other groups operating under the NAB umbrella were concerned, the bank saw planner numbers at NAB FP, GWM Adviser Services, Godfrey Pembroke, Apogee Financial Planning and Meritum Financial Planning Group fall by 7.4 per cent year on year. 

At the same time, GWM was the only group which managed to increase its planners by 6.6 per cent after the firm shed 38 planners last year.

TOP 10

Although the make-up of the top 10 groups has been pretty consistent over the last few years, the 2018 survey marked a few meaningful changes as the industry saw the departure of Dover Financial Planning.

The group, which was very successful last year and managed climb up the rankings to secure ninth position, has seen things dramatically change for worse since then.

In June, the company announced it had entered an agreement with the Australian Securities and Investments Commission (ASIC) which resulted in cancellation of Dover’s license, effective 6 July, leaving around 400 financial planners in limbo. 

The decision followed the earlier appearance of Dover’s principal, Terry McMaster, before the Royal Commission and his dramatic collapse while giving testimony during proceedings.

It was also announced that McMaster would be removing himself from the financial services industry as part of a court enforceable undertaking.

Following this, in September ASIC commenced a civil penalty action in the Federal Court against the company and its sole director McMaster, alleging that Dover had misled and deceived clients between September 2015 and March 2018.

This unprecedented event has left Synchron remaining as one of the largest non-aligned groups among the top 10 leading financial planning firms. The company posted a 12.3 per cent growth, bringing the total number of its planners to 492.

Synchron, which has been present in the Australian market for the last 20 years and which derives 42 per cent of its revenues from financial planning activities, said one of the reasons it remained so attractive for advisers is the environment it had created.

According to Synchron’s director, Don Trapnell, rather than targeting the recruitment of young advisers, the company had focused on creating an environment that would be attractive for young advisers.

“The average age of a Synchron adviser is 48 against the industry average of 58 and over one-third of Synchron advisers are 40 or younger. However, we also highly value our more experienced advisers, who have a great deal of knowledge and expertise and a lot to offer the next generation,” he said.

Another reason which Trapnell said made his business attractive for advisers was the fact that the company paid its advisers daily: “My co-director John Prossor and I are advisers ourselves, so we really do know what it’s like to run a financial advice practice. We know how vital cash flow is to small businesses and we don’t think it’s fair to hold onto other people’s money any longer than strictly necessary.”

The top 10 this year also saw the arrival of SMSF Advisers Network (SAN), which aims to provide self-managed superannuation fund (SMSF) advice with the removal of the accountant’s exemption, and which had 821 financial planners on board as of the end of July.

As far as other non-aligned groups were concerned, the survey found that GPS Wealth, which was acquired last year by the publicly listed Easton Investments, saw one of the biggest jumps in the rankings. According to the FAR figures, the company grew its number of planners to 310 from 120 last year, climbing 24 places in total across the rankings.

Also, another non-aligned group, InterPrac Financial Planning, continued to see a steady growth in planners from 225 to 298 this year. Similarly, this translated into a climb in the rankings as the company advanced from 28th position to 13th over the last two years.

What’s next?

As of now, the financial planner community remains split with some viewing the potential outcomes of the Royal Commission as an opportunity rather than a threat and others claiming it will only speed up what is inevitable – a move towards an advice-only business model.

Although the Commission’s primary aim was to address the conflict between aligned financial planning groups, the final recommendations are expected to look far beyond it.

“Contrary to some of my peers in the privately-owned space, I see no issues with the vertical integration model, provided the consumer is fully aware that the product being recommended may be a product from the owner of the licensee,” Trapnell said.

He went on to compare the financial planning industry to another sector, stressing that there was nothing wrong with “consumers expecting to get BP petrol from a BP service station”, with the only caveat that this consumer should be informed fully enough to understand that the product provider and the licensee are one and the same.

“The dismantling of the aligned distribution model will almost certainly result in fewer consumers receiving advice,” he said.

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