Are major licensees sitting on fragile balance sheets?
As licensees compete to attract financial advisers, the chief executive of one publicly-listed financial advice group has claimed most licensees are either losing money or are only marginally profitable.
The chief executive of Countplus and former Financial Planning Association (FPA) chairman, Matthew Rowe, has provided an analysis to advisers working under his Countplus and Count Financial licenses in which he outlines the results of analysis of the balance sheets of his competitors and declares profitability to be their greatest challenge.
He said he had spent his spare time analysing publicly-available Australian Securities and Investments Commission (ASIC) records and the financial statements of Australia’s Top 50 licensees and declared that “it is not pretty reading”.
“Alarmingly, almost all lose money or at best report low profitability,” he said. “Not one is achieving an adequate risk-weighted return on capital.
“There is evidence of some large retained operating losses (excluding compensation expenses which worsen the picture) with most vertically integrated players. There also appears to be a focus on the economics of capturing distribution for product upstream rather than the sustainability of advice per se, and employment costs in some are low (meaning questions must be raised over lack of resourcing and regulatory arbitrage).
“It is obvious that without product subsidies most would not exist. There are many fragile balance sheets that may not stand up to the challenges inherent in adapting to a required shift in the economic model demanded by the new world of financial advice.”
Rowe’s message to advisers contained the following table:
He also pointed to problems associated with licensees obtaining professional indemnity (PI) insurance, noting that stretched balance sheets of some licensees may make it difficult for them to meet any claims resulting from complaints to the Australian Financial Complaints Authority.
He said this needed to be noted against the background of research commissioned by CountPlus suggesting that seven PI insurers “have no or limited capacity, and most others are only renewing with a “premium correction” and no new capacity in the sector”.
“All are very selective in what business they will write,” he said.
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