Vertical integration prompts strategy change

Some Australian-based fund managers have been forced to refine their distribution strategies as a result of consolidation in the financial planning sector - something which has led them to place more effort into servicing the so-called “big six institutions”.  

Eighteen months ago, when it became apparent that most large independent dealer groups had already fallen under the umbrella of either the big four banks or AMP and IOOF, it became obvious to Aberdeen Asset Management that inflows would mostly be sourced from these six organisations.  

“We currently have around 80-85 per cent of flows coming through those channels,” said Aberdeen managing director for Australia, Brett Jollie.

Because of this, the asset management firm refined its retail distribution strategy to ensure the it adequately serviced those six big accounts.

The firm appointed a key account manager to focus solely on building and maintaining relationships with those institutions, also ensuring they understood Aberdeen’s business.  

“We needed to make sure we were servicing those channels adequately and putting more effort into maintaining relationships with those specific organisations,” Jollie added.  

Last year’s Money Management/DEXX&R Top 100 Dealer Groups List shows that 15 out of top 20 dealer groups according to planner numbers belonged to one of those six institutions, with risk-focused advice group Synchron being the only non-institutionally owned group out there.  

Furthermore, the Australian Securities and Investments Commission recently expressed concerns about the fact that almost 90 per cent of financial advisers belong to one of the major institutions.  

But while Aberdeen still serviced the non-aligned adviser market, Jollie said there would inevitably be less focus on that sector.  

“You’ve got the banks buying up independent dealer groups, so by definition you see a reduction in the number of advice groups that are out there to service,” Jollie said.  

“We still do service that part of the industry as well, but there is more focus than previously on those six businesses.”  

For boutiques, however, this strategy might not be the best one, according to Hyperion Asset Management chief investment officer Mark Arnold.  

“The retail business makes up a fairly small component of the overall business, so the strategy has really been to try and increase the number of platforms and networks that are promoting our product,” Arnold said.  

“We haven’t been going the other way of focusing on a smaller group of distributors and that’s because we’re trying to expand our network in that space as much as possible.”  

However, consolidation in the advice space is not the only reason larger fund managers increased their focus on servicing the big six.  

Managing director of Apostle Asset Management Karyn West said despite her firm focusing solely on institutional clients, it kept a close eye on the large banking groups, especially in the last year.  

“We always keep a focus on the large banking groups because they’ve gone through a lot of change in the last couple of years, such as keeping up with regulatory change and internal restructuring” West said.  

“Over the past year if you didn’t have the focus on them, you wouldn’t have a business there.”