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The managing director of Australia’s largest financial planning dealer group, Professional Investment Services (PIS), has warned that without payments such as volume rebates, the majority of Australian dealer groups will not survive.
As a result, dealer groups must look to the provision of products for revenue in the future.
PIS managing director Grahame Evans said there had been a lack of analysis around the economic impact of the removal of commission payments at a licensee level, including the recently hotly debated ‘volume rebates’ paid by product providers to licensees whose representatives reach certain sales targets.
Evans said the removal of these payments could see many of Australia’s largest dealer groups “disappear”.
The only way to avoid this fate would be to restructure, Evans said, with dealer groups needing to either offer their own products internally or move under the ownership of an institution.
“From our perspective, while the dealer group may not make massive profits in the future, the overall operating group can still make profits, if it has products, just like a bank or a life company.”
Evans believes the changes currently taking place in the profit arrangements of the financial planning industry will see “more people likely to be tied to an institutionally-owned dealer group, and therefore actually working within the confines of a fairly restricted APL [approved product list]”.
“I can see that without [a dealer group being restructured to have] its own product, the largest dealer groups will actually disappear unless they’re owned by institutions,” Evans said.
“And then you move back to a smaller APL and one that is more likely to be tied in some way or another to the institutionally-owned platform or product base.”
Evans argued that even many boutique dealer groups “do actually have their profitability driven partially by platform margins”.
“Just like the banks or the life companies, if you’re a big dealer group you’ve got to look to have product,” Evans said.
While he said product margins for product sales must be kept separate from dealer group profits to avoid conflicts of interest, he did say APLs would be “substantially restricted”.
PIS has a shareholding in Ventura Investment Management, which is the responsible entity for a series of Ventura and All Star funds.
The group has cuts its APL from 1,300 products in 2006 to around 530 today.
