Many planners looking for dealer group alternatives

More than half of Australian financial planners are unhappy with the value they receive from their dealer group arrangements, but few are able to point to an alternative beyond self-licensing, according to a survey conducted by Money Management.

The survey sought readers' views on the future of financial planning dealer groups, and asked respondents if they believed they received value for the cost of their dealer group membership, with 55 per cent of 140 respondents answering "no".

On the question of whether they could think of better alternatives to the current dealer group model, nearly 50 per cent of respondents answered "yes", with most of those then proposing arrangements based around self-licensing.

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Of those respondents proposing a self-licensing model, nearly 60 per cent either expressed a desire to separate product from advice or were critical of bank-aligned dealer groups.

Interestingly, a significant proportion of those commenting on new models suggested that the Australian Securities and Investments Commission (ASIC) and industry bodies such as the Financial Planning Association (FPA) or the Association of Financial Advisers (AFA) could play a greater role.

There was clear recognition amongst those arguing against the current dealer group model that there were both benefits and deficits in moving to a self-licensing model, including the loss of purchasing power and dealing with compliance issues.

However a number of respondents suggested that these problems could be overcome either through cooperative arrangements or via the FPA and AFA.

The Money Management survey remains open to responses by CLICKING HERE.




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The old dealer Group Model of clipping the ticket for all transactions is past the use by date. If you use other professionals such as accountants you will be billed by the accountant , or the firm doing the work. Our Dealer Group works on the basis that advisers can outsource some of their requirements to the group and be charged a fee for those services as required,. This means that advisers do not pay for services they do not require.
All our advisers own their clients, advisers stay because there is a true value proposition.

I'm a Director/Shareholder of a boutique AFSL. In the past I have been part of institutional Dealer Groups who charged like wounded bulls and provided very little support in return.
I am happy to say that as a Dealer Group we outsource a lot of our compliance/commission reconciliation services.
There is a minimum monthly fee + PI and there is a maximum fee charged irrespective of the level of fees/commissions an adviser may generate. Our AFSL is profitable even though it's small.
It rewards the larger producers in our AFSL who are not penalised by Dealer Group fees that reflect the level of their production.
We have like minded individuals in the collective that put the client, first, second, and last.
Our APL is flexible and is backed up by our Research provider &/or Board approval.
The issue at hand is that being small and independently owned, allows us to manage all those who operate within our license without the burden of larger Licensees or being self licensed.

Directors wages, board members fees, commission reconciliation teams, .... equals an unnecessary layer of costs and positions that need to be justified in some way & advisers and consumers all end up paying for. Ultimately any dealer group of reasonable size needs to grow. Good luck staying small and boutique but before you know it , you'll be trying to grow to pay for the tea lady's salary. You'll be offering AR status to a dodgy accountant selling agriculture schemes, and you'll be blaming lack of education standards in the industry.

Dealer Groups are dinosaurs, stuck in the 80's. I reckon at least 45% of advisers who said they'd be staying are with AMP and tied up in BOLR arrangement. Under Best interest obligation it's your butt on the line, not the dealer group. So frankly can't see the point of undergoing all this education, testing, extra compliance, extra business costs if the future of the industry is dictated by dealer groups, fund managers and Union run super funds. The adviser is going to lose every time. The future is either aligned or unaligned & those advisers unaligned, getting rid of large dealer groups and becoming self licensed. Advisers forming co-operatives and greater regulation by professional associations themselves. Only then will be rid of all this red tape forced on us by dealer groups. Consumers are over having to sign the ridiculous amount of paperwork involved and advisers are sick of turning clients away. Costs will drop and the chances of rogue advisers just being a number in a large dealer group will diminish. We've now got a whole bunch of accountants getting licenses and when they get caught out it won't be dodgy accountant hitting the news it will be dodgy adviser hitting the headlines. We need to fix the model, it's well and truly broken and needs to be changed.

Dear Yogi,
I expected you to be a lot smarter than that.
As a shareholder I put my money as did every other shareholder and have waited 4 years to receive a small dividend as a ROI.
I wanted to invest in something that I and others believed in as advisers and putting our money where our mouths were, seemed ideal !
In our AFSL, there are no Directors wages, no Board member fees, no tea lady long service leave requirements because everyone is an adviser in the License.
If you knew anything about an adviser collective which is what it is, no client, no adviser gets ripped off.
In fact many businesses are more efficient by outsourcing certain services because its more efficient & economical to do so rather than spend many more dollars doing it yourself.
You might want to see what it's like in the real world some day.

You've hit the head on the nail. You're running a dealer group and you want a ROI. Most planners are over having their clients pay someone else for another layer of unnecessary fees, for services they don't need or an overzealous compliance regime, in order for someone else to derive a profit. Product margin, platform margin, dealer group margin, advice margin...Now don't get me wrong. It sounds like your boutique model is the way of the future. I'm assuming it's a small group of like minded advisers banning together, working in the coal face, trying to keep compliance and costs down. If you can keep it that way then great and I applaud you. There comes a point in adviser numbers however where you're forced to grow, and with that comes compliance obligations and ultimately we'll take anyone on mentality and that's leading to poor outcomes. My experience of being a Responsible officer in an AFSL, and being an AR of several brain washing, cult like institutional licensees and also one non aligned AFSL is that it's not working, it's a flawed system and we need a better model if we want a profession.

I think we're are missing the main argument. That is, why does an AFSL regime need to exist, unless for product. There are arguments all sides of which type of dealer - institutional/flawed -product distr, tight APL,etc but they do have an overzealous compliance regime, which arguably offers protection. Then Boutiques, who are now nearly all vertically integrated, and have less resources to spend on compliance processes, and with possibly inferior investment product. Then we have the self licensee, despite all the good intentions, but you only need one individual to have a an odd perspective of investment e.g. derivatives, or trees - and you have a disaster. The problem is, all of these systems revolve around Financial Product. Separate Advice and Product. You separate advice and you don't need a license, you can be administered by a professional association. THe CPA's for example audit there accountants every 3 or so years - but its a 3-5 day audit, so pretty fair dinkum. It is a fact that more money is lost via faulty or ordinary products than by poor financial advice. The policy makers want financial advice to be cheaper and more accessible. Then unhitch the wagon from product. No more lengthy SOA's, strategy papers, etc etc. And if you want to sell product, fine, have an AFSL - that's how the original Corps Act is written, before FSR. It needs to reviewed in a major way by an independent overseer, and not thrown into some overarching 'Financial Services Review' - advice needs a review of its own, separated from the product driven FSC's etc - they want us to stay in their loop. Rant over.

Dear Phil,
If you are insular in your thinking then I can understand why you think the way you do.
You are factually incorrect in your rant (as you put it) on many levels.
The holder of an AFSL or being an Authorised Representative of one is a privilege not a right because of circumstances or education.
1. The AFSL exists because those who claim to represent those of us who work in the financial services industry don't have the capacity or the capability to manage human beings.
ASIC clearly knows that God hasn't made the perfect human being and with all our flaws and frailties, thinks ongoing legislation will fix poor or crooked behaviour.
Do you think the FPA or the AFA have the capability to audit our profession/industry.
By the way there are a number of accounting organisations but not everyone working in that profession/industry is a CPA !
2. Are we over-regulated ?
Well I think most would say "yes".
3. An AFSL does not exist just to promote a product. It's a means to an end. It's a solution to problem/benefit to the client.
Try finding a solution to a client's problem without a product at the end of it.
I don't think many advisers have the capability to even research most product offerings, which is why they are put on an APL.
Every product on any APL has to be appropriate to the clients risk tolerance, so I'm hopeful you don't use your APL like you're ordering off a Chinese menu.
4. Those who have, as you put it have an over zealous compliance regime because they are beneficiaries of enforceable undertakings imposed by the regulator because some of their advisers were more interested in putting their own interests before the clients.
Therein lies a good example of the flawed human being.
5. Not all boutiques are vertically integrated.
In fact many pride themselves on being independently owned and not being connected directly or indirectly with any financial institution.
Ours is independently owned by the advisers. We invested in our AFSL not to make a profit but to be masters and control our own destiny. Almost every adviser in our AFSL is tertiary qualified, many are CFP's, and one has a Masters in Financial Planning.
When you have quality advisers that all have a say in how the AFSL is run, then you have the right kind of culture for it to be successful.

I think AC & Phil you're largely talking about the same thing. I think we can agree that, Phil your point sums it nicely, ''when you have quality advisers that all have a say in how the AFSL is run'', then it's going to be successful. The issue we've got, is that in most larger dealer groups, say more than 25 to 150 plus, the adviser has no say. We need more of alignment between the AFSL, the adviser and the client. The larger the group the more this alignment diverts. Why not make it a requirement that the board & Responsible managers of the AFSL must do a minimum amount of face to face advising each year. By the way I'm sure there are plenty of retired advisers out there that would not mind, walking into a planners business and doing a half a days audit once a year, say on behalf of the AFA/FPA, prior to calling in the audit muscle if something is a little smelly.

I'm suggesting this as a Future framework. Do I think the FPA etc might be able to audit - yes, why not - as I say the accounting and legal professions do? Why are we that different and we have lower numbers. If you choose you can give lots of advice without a product at the end. What do you think accountants and tax lawyers are doing? Super strategies, budgeting, asset allocation etc - you don't have to then do the second part and recommend a product. Many clients don't proceed that far anyway. Products are also put on APL's because they are the dealers. Your model sounds ideal, but its not new. And what starts as utopia has historically turned to product, or vertical integration, or the utopian founders take off their sheeps clothing and sell the dealer to an institution. Oh, and to make sure the planners stay on board they offer an incentive that is cruel because human nature makes it difficult to turn down. Hence, in my opinion, no licensing, professional association individual audits, planners are only planner with the right education and experience identified. What could be simpler than that? Then if you want advise on product, you have to identify yourself as that, any conflicts, and remuneration etc.

Dear Yogi,
We did not invest in our AFSL to make a profit.
Otherwise, who would wait 4 years for ROI.
We understand that adviser size does create the problems you've alluded to.
We don't want more than 15 advisers in our AFSL. Some in it already manage in excess of $200m FUM and don't need to "shaft" clients to deliver the kind of services that we ourselves would expect from someone else.
We do not intend to expand much more than we do now but the critical point is, that outsourcing some of the compliance services etc makes our model more economical and efficient than having to pay a number of people to perform the same duties within the License.
Because it's a collective of sorts the advisers own the License, and we are critically aware that any adverse actions by any one of us, effects the collective as a whole.

I can see AC and Yogi, that the AC model might be the transition pathway - maybe 5-10 years, to the Association model. Who knows but that sounds OK to me. Oodles of like minded coops, small enough to control, collaborating under a professional association, then transforming over to that association if that's a stronger, more cost effective solution eventually.

Alleycat, your setup is the model I'm actually suggesting we need. 15 advisers, each adviser critically aware that any adverse actions impacts on the hive. (and thus the entire wider adviser community). We need to caste a critical spotlight on these bigger dealer groups...say above 25 advisers and especially the 100 plus models, with teams of useless BDM's, slapping together a PD days offering an economic update as at 31 March in July, with tick a box auditors thinking that's value for money. We need the FPA and AFA to get involved more with small self licensed advisers and smaller boutiques to help them thrive and get their costs down. Get rid of these large dealer groups I'm saying, and let's have a look at the whole model. Goodluck with it.

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