Financial planning opportunities in rural Australia

With dealer groups looking to service untapped markets, rural and regional Australia could represent a perfect growth opportunity for financial planners.

The old models of generating clients are under threat.

With more consumers questioning the cost of advice and whether they need it, advisers and dealer groups are struggling to convince clients of the value they can provide.

The uncertainty surrounding the implementation of the Future of Financial Advice (FOFA) changes and the halting of old revenue streams like commissions and platform rebates has led to lesser value clients being dumped by the wayside in favour of high net worth clients, while dealer groups search for new ways to generate revenue.

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Some financial advisers are baulking at the cost of ongoing advice and are embarking on a cost-cutting drive to reduce their business expenses.

But out in regional Australia, financial advisers are sitting on a well of untapped consumers with the potential to make advice to the general public a profitable exercise once more.

Increasing the reach of financial advice

Shepparton-based Bendigo Wealth adviser Debra Polkinghorne believes there is great demand for financial advice in the regional areas.

“I’m flat out,” she says.

Polkinghorne estimates she has more than 300 indirect clients that she has contact with, in addition to 100 direct clients that she sees twice a year or more.

The demand is so great that Bendigo is considering the possibility of installing another adviser in the region.

The new wealth management arm of rural Bendigo and Adelaide Bank was launched in April last year and is at the forefront of the push to develop the advice potential of outback Australia.

The bank is steadily building up its advice capabilities in the regional areas to target previously untouched consumers, including expanding the number of its phone-based wealth consultants to provide simple advice to clients who can’t be seen to by a Bendigo adviser.

Bendigo Wealth head of wealth markets Alex Tullio announced in June that the next intake of consultants to the phone service would include advisers to help customers in remote locations.

The company now has 12 wealth consultants.

The rapid take-up of the service was driven by pent-up demand for simple advice, particularly in rural areas lacking a Bendigo adviser, Tullio said.

While most of the demand at first came from consumers wanting superannuation advice, Bendigo is actively working to promote the service through its bank branches and advisers.

Bendigo has around 470 branches and 68 planners.

Some institutional dealer groups have cottoned on to the opportunities available to them and have taken big strides to increase their reach across the country.

Westpac Financial Planning, for example, uses a virtual advice program to boost its financial advice business.

It also has a phone service for clients around the eastern coast and in Western Australia, as well as fly-in-fly-out (FIFO) advisers for more complex advice problems.

The services have been particularly successful in Mildura, Tamworth and Karratha, the bank said.

In a written statement to Money Management, general manager of bank financial planning Mike Chesworth said it wasn’t effective with a smaller population to have a regional planner working on location full time, and remote clients were happy to use the technology.

The virtual advice system, which was launched in September last year, allows the planner to share documents, spreadsheets and projections, and to exchange signed documents and contracts on the spot.

However, the system does have its drawbacks.

In order to see the planner, customers still need to visit a local Westpac branch, which has a dedicated office with dual monitors and a multi-function device.

While that might work for consumers close to a fairly large town, it could be more of a problem for someone who is truly isolated.

The Commonwealth Bank's (CBA’s) Financial Wisdom already has advisers on the ground in many different locations around the country.

But its advisers can also use a phone-based service, Advice Essentials, to reach more clients than they would be capable of seeing face to face.

“That gives them greater reach to give more advice to more Australians,” says general manager of Financial Wisdom Mark Ballantyne.

Having phone-based advisers is critical for dealer groups building up their regional footprint. The average city-based adviser might service 100 clients within a 15 kilometre radius.

But the regional-based adviser often has to cover clients hundreds of kilometres apart.

Commonwealth Financial Planning is known to be running a video conferencing pilot to areas with bank branches but no adviser, but the relevant CBA spokesman was unavailable for comment at the time of publication.

Attracting new clients

Building a pool of clients in regional areas often means simply introducing people to the benefits and the need for advice as a first step.

Polkinghorne frequently runs seminars for the locals on financial issues they need to consider. She gave one seminar on the importance of income protection to a football team after they made it into the finals.

Other planners have offered seminars on retirement, aged care, or volatility in the share market.

The majority of business for Bendigo’s advisers comes through the banks they cover in their region. Polkinghorne covers three bank branches and four community-owned banks in the surrounding area, and picks up business from the entire surrounding demographic.

“They’re very community oriented, so that’s why I have so much business come through,” Polkinghorne says.

A dealer group’s ability to develop new business in the regional areas often relies on the energy of the advisers themselves.

The success of any regional adviser is directly related to how well they service and look after clients in their area, according to AMP director of financial planning, advice and services Steve Helmich.

Having self-employed advisers helps. It makes them invested in their business, proud of the advice they offer to the community and encourages high standards in their work, according to Ballantyne.

AMP’s advisers are self-employed, as are Financial Wisdom’s.

“I often get emails from all my fellow financial planners who are struggling in areas, wondering what I am doing different to them, because I’m averaging the highest number of appointments,” Polkinghorne says.

Support networks

Like all business owners heading into new territory, an adviser cannot establish a dealer group’s advice business without a good support network comprised of several important elements.

Bendigo is building a support network for its advisers from scratch.

Bendigo’s regional manager established a ‘hub’ network between the 17 advisers that he manages so they could compare notes and work together more smoothly.

Polkinghorne’s regional manager is in constant contact with her to see how her business is running.

The ability to connect with peers is highly valued by regional advisers, allowing them to discuss best practice ideas and then collaborate with head office to implement them in their practice, according to Ballantyne.

Polkinghorne was also given a full-time assistant 12 months ago – at her instigation – so that she could spend more time focusing on advice than administration.

That has also allowed her client book to build up as consumers can contact her assistant at any time.

The second strand in the regional adviser support web is access to a good technical services team.

Helmich praises AMP’s technical team, TapIn.

“Advisers can ring up any time and get immediate answers, they get support in writing, statements of advice or advice strategies, it’s a highly regarded service,” he says.

Financial Wisdom regional advisers have full access to the same services as metro-based advisers, Ballantyne says.

That includes a practice development manager, research, marketing, compliance, and technical services.

However, technical services can’t answer every problem or cover every scenario that a regional adviser will encounter.

Some advisers believe more needs to be done to support and train advisers for their regional role.

Technical services need to be combined with practical knowledge and innovation, according to Westpac senior business financial planner Glenn Calder.

Many other businesses that are sold are all about business multiples and valuations, but an adviser passing a farming business from one generation to another needs to be creative and innovative in how he restructures the business, he says.

Regional advisers also need to have a deeper understanding of business risk and how it applies to regional businesses.

“A lot of planning is learnt from a theoretical base rather than a true understanding of rural and agricultural businesses, so discussion of risk doesn’t tend to get into the depth that it needs to truly understand the business and address risk,” Calder says.

Many planners aren’t equipped for that risk and have no background other than theoretical knowledge, so there is a huge need for a practical approach to risk management as well.

“There are so many different types of risk that need to be addressed, particularly in farming, and there are so many variables all the time,” he says.

There is a big difference between many farming businesses that are the staple of life in the rural areas, compared to most self-owned businesses in the suburbs.

The strong personal, psychological, and family connections to the land and the wider farming industry are something planners won’t find in other industries.

Owners of business in other industries also often sell their business with more ease than in the farming industry, but a farmer will sell his land within the family and continue to work on it for the rest of his life.

Understanding that connection, the owners and workers involved and their backgrounds, is critical to an adviser’s work.

A strong understanding of estate planning is also needed in the farming industries.

“There is a lot of wealth built up in the land and in farming, particularly in dairy farming, so 20 to 30 per cent of our work is in succession planning and helping them realise that wealth and invest it appropriately,” Calder says.

Ballantyne believes that the knowledge and expertise in an area and its businesses comes from living there over time.

“My advisers in Townsville know all about the sugar cane industry, whereas the advisers in Mildura know all about citrus prices and things like that,” he says.

Being in the community allows advisers to keep their finger on the pulse of the town, lets them learn what is important to residents, and when they are doing well, he says.

Is your adviser well-grounded?

At the moment it appears that most of the advice on offer to regional areas is on the ground and face to face.

Westpac has a fly-in-fly-out (FIFO) service to help clients with more complex advice issues, but it appears that few other dealer groups have followed suit, despite it appearing to be the easiest way to boost the reach of advice and still have face-to-face contact with consumers.

Helmich and Ballantyne seem to dismiss the idea of FIFO advisers.

“Occasionally advisers might have a satellite office themselves, where they work in two towns, but we don’t fly-in-fly-out. Our advisers are typically a fabric of the local community and are well known and well regarded,” Helmich says.

While Ballantyne acknowledges that the priority for dealer groups is to provide more advice to more Australians, he believes that people who live in regional areas want to deal with someone they know and someone who is local.

Video conferencing may have its limits when it comes to regional advice.

Zurich national manager for sales strategies and research life risk Mark Fabris said recently that while voice and video software could add more advice services without the need for traditional face-to-face meetings, advisers need to survey their client base to see what method works best for the business.

In other words, will consumers be happy talking to a computer screen?

Nowhere is that question more pertinent than in a close-knit regional town, where everyone knows everyone and personal relationships matter more than in most other places.

Bendigo, AMP and CBA all spruik the idea of face-to-face value and personal relationships.

Community is everything to the success of Polkinghorne’s business.

“That’s why we can deliver for our clients, to help them through the way we do business,” she says.

“AMP has got a proud record in regional areas, and if you go to certain regional areas, they talk in glowing terms about the role AMP has played in the region helping people set up, and we’re very proud of that,” Helmich says.

That approach is the same with Financial Wisdom. The dealer group supports advisers who are part of the fabric of their community, Ballantyne says.

While regional banks like Bendigo and the institutions are increasing their advice reach through the regions with phone services and online advice, it appears that the end game is for those consumers to eventually be looked after by a planner on the ground.

Bendigo’s wealth consultants phone service is run under the guidance of bank branches and the planners themselves, rather than being spruiked as a stand-alone offering to consumers.

Any advisers that cannot get into Polkinghorne’s diary are seen to by the wealth consultants.

Undoubtedly, when an additional Bendigo adviser is finally brought to the Polkinghorne’s area, many members of the public utilising those services will eventually become full-time clients.

AMP’s graduates from the Horizons Academy can often be placed in regional towns throughout the country.

“We’ve got a very big advice footprint,” Helmich says.

Business succession

Finding an adviser to keep a practice running is harder than it looks. Last month this publication reported that dealer groups around the country were struggling to find replacements for retiring practice principals in regional areas.

Some dealer groups had “abandoned” their practice principals, leaving them to find their own replacements because of the difficulty, according to Kenyon Partners chief executive Paul Tynan.

Other dealers had been forced to buy the practice in a Buyer of Last Resort scheme and were staffing the practice with salaried employees as a stopgap measure, he said.

Practice principals looking to retire need advanced and strong planning. Capstone Financial Planning network manager Jamie Johns said succession should start five years before retirement.

Helmich suggested an even longer timeframe of five-to-10 years in extreme cases.

Many regional principals only start thinking about succession two years out from retirement, Johns said.

“What you tend to find is they have to rush the sale, and then they jeopardise their business and flexibility to transition,” she said.

That can be fatal for a regional planning practice.

Commitment to the practice, the area, and the clients is the most important factor when picking a successor for a regional practice, according to Calder.

The adviser must also be trustworthy.

“The people who rely on us are our friends, so we have to have advisers that we can trust with these people because they trust us with what we do,” he says.

The process of finding a replacement for a regional practice principal is the same for any other practice, Helmich says.

AMP has tentacles in social media, advertising, and also works by word of mouth and referrals.

Dealer groups shouldn’t restrict their search to only the regional area that the planner works in.

Sometimes there may be advisers who moved to the city in their youth who are looking to move back to their old town, or an adviser who wants a sea-change and the chance to move to quieter areas.

They don’t have to search through current advisers either. Sometimes a professional seeking a change in careers can be a dealer group’s best bet.

AMP has in the past recruited one accountant to become a takeover advice principal.

AMP also has business partnership managers who work in the area with advisers both in building up practices and planning for succession, Helmich says.

The purchase price for a planning practice has been trending down over the last couple of years since the GFC.

The average purchase price for a planning practice four or five years ago was $980,000, compared to approximately $600,000 now, according to chief executive of Radar Results John Birt.

Recurring revenue has dropped by a third during that time.

The purchase price for smaller regional practices is currently sitting at around $450,000 for a practice with recurring revenue of $150,000 or more, slightly cheaper than a metro practice.

That should entice advisers into the regional areas over a metropolitan practice, but the industry is already suffering from a shortage of planners.

The Future of Financial Advice (FOFA) changes have pushed many advisers to leave the industry over the last 12 months as they decide they can’t comply with FOFA regulations, Birt says.

The number of advisers is expected to drop from 16,000 to 10,000 in the next few years.

There were already dealer groups who couldn’t find planners in the open market to take over a regional practice, Birt said recently.

Size of the practice

FOFA is also driving down the value of C and D type clients, and advisers are frequently turning to specialisation in particular areas to increase the number of profitable clients they have on their books.

However, this is a difficult approach to take for regional planning planners, who are often the only advisers in the vicinity and are in demand by all types of clients.

Helmich says offering general advice is a necessary part of the job and one-man bands can’t just specialise.

“Some large practices do have specialists in there, but when you get to smaller regional centres, they tend to be more general practitioners, and if there is other expertise [needed] they can get that expertise from our technical support areas or advice help desk,” he says.

The size of the practice depends on the size of the area and the needs of the population, Helmich says.

The best way to keep regional advice truly sustainable, and financially viable, may be to draw advisers together into one practice covering a large area.

The network that Bendigo’s regional manager set up with Polkinghorne and other Bendigo advisers allows them to refer clients to each other .

Polkinghorne is completing an aged care accreditation, while another Bendigo planner is an accredited SMSF specialist.

Calder’s practice has five planners and three support staff. The mid-sized practice allows them to offer a holistic service to the surrounding area but still gives each planner the ability to specialise.

The connection of a small- to mid-size regional planning team with the backing and skills of an organisation is an incredibly powerful and rarely unlocked combination, Calder says.