Reforms create opportunities

Government reforms to commissions could provide an opportunity for planners to launch their own boutique advisory practice by taking on lower tier clients hived off by commission-based market players, according to Alan Kenyon, director of Kenyon Prendeville.

Speaking to Money Management, Kenyon said that some dealer groups would respond to the ban on commissions by carving off their unprofitable ‘C and D’ level clients with low level trail commissions, rather than reviewing their circumstances and staying in closer contact with them.

“They haven’t serviced these clients, they might be sending newsletters or communicating by saying ‘If your circumstances change, contact me’ — but they might be receiving $300 a year in trail commissions, so it is worth $300 to keep in contact?” Kenyon said.

“It’s hard to get clients to come in for a review.”

This has provided opportunities for planners who are willing to put in the effort to buy a portion of those lower tier clients and convert them to a revenue base of fee-for-service clients, Kenyon said.

“Every practice has clients they haven’t seen for years and a cottage industry that’s evolved around that ... I think there’s an opportunity for people who can’t afford to buy a fully fledged up-and-running practice which is earning $600-$800,000 a year to buy those clients, and to get into their own business,” he said.

Planners who were dissatisfied with the major banks, or who have not been offered equity in former dealer groups, could develop and run their own practice around those clients, Kenyon said.

“What you might do is buy 600-700 clients, and then you have two years to get around the whole [fee-for-service] concept, and you might end up with 150 clients once you’ve been through the process, generating $300,000 of revenue,” he said.

Kenyon has previously noted a trend of planning practices responding to the commissions debate by hiving off unprofitable lower end clients.