A lot has changed in the past 10 years and financial planning practices impacted by the sale of MLC Wealth to IOOF have been learning what happens when the major banks are sellers rather than buyers.
As financial planning businesses operating under MLC Wealth’s Godfrey Pembroke license contemplate their options to moving across to IOOF license coverage, they might care to reflect on the similar situation which confronted financial practices operating under the Count Financial license when it was acquired by the Commonwealth Bank in 2011.
The difference between 2011 and 2020/21 are stark. In 2011, the Commonwealth Bank was prepared to make significant ‘retention payments’ to keep good financial planning businesses under the Count Financial license in circumstances where competitors like Westpac’s BT were prepared to offer ‘transition payments’ to lure them across to its licensees such as Magnitude.
With sums of more than $500,000 being offered around as either ‘retention’ or ‘transition’ payments, the principals of some of the better financial planning practices found themselves in windfall territory as they parlayed efforts of the major banks to grow their wealth management businesses.
Today, amid the inevitable uncertainty generated by a transaction of the size of IOOF’s acquisition of MLC Wealth, competitor licensees are no less interested in luring good financial practices away from IOOF, they are just not in a position to be as generous as the big banks were in 2011.
Lacking that generosity they have had to become creative.
Thus, the six figure ‘retention’ and ‘transition’ payments have given way to discounts on dealer group services and, in the case of IOOF itself, an amount of up to $10,000 to help advice practices manage their transition from one licensee to another.
According to IOOF’s head of advice, Darren Whereat, the $10,000 is on offer to cover genuine costs up to that amount to help advisers “manage the transition to a new licensee including expenditure on new stationery and client communication”.
IOOF will also be maintaining the discounted dealer group costs that advice practices were paying at MLC Wealth TenFifty, with Whereat suggesting they would be asked to pay additionally for professional indemnity (PI) insurance and Xplan.
The problem for other dealer groups in seeking to lure MLC Wealth or IOOF-aligned practices to their licenses is that they have to be conscious of the discounts and other concessions they are offering those practices and how that is likely to impact their existing adviser workforce, especially in circumstances where dealer group fees have generally been rising across the industry.
As Money Management reported earlier this year, advice practices have been asked to accommodate fee increases of between 10% and 50%.
In one instance, the dealer group increased its fees for a financial adviser working within an aligned practice by 11% to $26,400 plus 3.3% of revenue.
Another dealer group’s documentation pointed to adviser fees rising from $32,000 for a one authorised representative (AR) firm in 2020 to $45,000 for the same AR next year.
So, the bottom line for dealer groups looking to lure financial planning practices to grow scale and resilience is that it is a balancing act constrained by many fixed costs.
