According to research by The Dashboard Company, the average funds under advice (FUA) per active client in Australia is $104,000.
Strategic Consulting and Training (SCAT) managing director Jim Stackpool says that out of the top 10 financial planning groups in the recentMoney ManagementTop 100 dealer group survey, the majority of clients would be provided by the mum and dad market.
This prevalent lower-net-worth client base is because many of the top 10 financial planning groups have banking backgrounds, such asWestpac Financial Planning and Advice, andCommonwealth Financial Planning.
Others, such asCount Wealth Accountants,Garvan Financial PlanningandProfessional Investment Services, come from accounting or life assurance backgrounds.
“There are a lot of mum and dads in the marketplace that are initially seen as clients but long-term are seen as stepping stones,” Stackpool says.
Though he disputes the term ‘high-net-worth’ itself, Stackpool says that a client who has over $250,000 in investable assets could be considered in that range.
The Dashboard Company figures show that the average FUA per active client for high profit firms is only $281,000, just within the accepted high-net-worth range.
MLCgeneral manager adviser business services Greg Miller says that the NAB/MLC network provides services to different client types, from wealth accumulators to retirees and from small businesses to large corporate clients.
He says about 15 per cent of clients would be in the high-net-worth range.
Miller says that NAB’sGodfrey Pembroke, which targets the high-net-worth market, has 185 advisers, $7.5 billion in FUA and 35,000 clients.
This fits with The Dashboard Company research, showing that for both average and high-net-worth financial planning businesses there are 200 active clients per income producer or adviser.
In NAB’s Garvan Financial Planning, the number of advisers stands at 600 and FUA at $7.7 billion, and although client numbers are not available, The Dashboard Company estimates would put them at approximately 120,000.
The comparison of these figures show that the majority of advisers in the MLC/NAB dealer network are dealing with a lower-net-worth type of client.
According to Stackpool, there are now more wealth accumulators in the market, although financial planning firms are still earning most of their income from retirees and pre-retirees.
The Dashboard Company statistics show that 26 per cent of an average firm’s income is earned from clients under 40, 36 per cent from clients between the ages of 40 and 54, 24 per cent between the ages of 55 and 65 and 14 per cent from above 65.
AMP Financial Planning chief operating officer Neil Macdonald says that his 1,500 planners have a heavy focus on the wealth accumulation market due to factors such as AMP’s geographic spread into regional areas.
“The vast majority of clients would be middle Australia,” he says.
Count Wealth Accountants’ public relations manager Kate Bell says that most of Count’s 130,000 financial planning clients would be middle to upper-class executives, small business owners or middle-aged, slightly higher income earning families.
Macarthur Financial Planning’s Peter Nonnenmacher, a proper authority holder of Hillross Financial Planning, says that lower-net-worth clients are important when growing a business.
“You need the low end of town to keep you in business and you always start with the low end of town,” Nonnenmacher says.
He says that most planners who now deal with high-net-worth clients would have started with lower-net-worth clients and sold them off to other businesses as they grew.
Nonnenmacher says that 50 per cent of his clients have between $200,000 and $500,000 in funds to invest, with about 10 per cent above the $500,000 mark.
Though Nonnenmacher is now dealing with well-to-do business people on high incomes between the ages of 40 and 50, he began with lower-net-worth clients.
This is typical of the way the clients of a business develop, according to SCAT’s Jim Stackpool, because the type of client depends upon the stage of the financial planning business.
Stackpool says that when financial planners start out, they are eager to test their experience and theories and will take any business and call them a client.
“At this stage, if they are living and breathing and have got some investable assets they are a client, because all business is good business,” Stackpool says.
He says this attitude changes about five years on in a business, when planners find they have outgrown these good initial clients.
According to Stackpool, most financial services businesses are caught in this management stage and find it hard to transition from their initial clients to the higher-net-worth market, though he believes this is an important step to take.
“I think the overall caveat is that every client deserves respect, but not every client deserves equal service,” he says.
According to Guest McLeod partner Tim Rossell, the debate around high-net-worth clients is “utterly misguided”.
Rossell says the amount of money a client has is irrelevant and that a client is more effectively measured on what services they require.
“Forget how much they earn and look at which are the most profitable,” he says.
Rossell also says that the definition of a high-net-worth client will depend on the individual financial planner and business.
“My definition of a high-net-worth client is different from the guy next door, which is different from the guy down the road.”
This is supported by the wide range of opinions on what constitutes a high-net-worth client, with Rossell suggesting $200,000 and $400,000 to be average high-net-worth, while Nonnenmacher suggests a client should have at least $500,000 to invest.
To Simon O’Donnell, a senior financial planner with Commonwealth Bank’s Private Client Services, a high-net-worth client would need $2.5 million to invest as well as $250,000 in income.
Due to these differing opinions, Rossell suggests it would be easier to classify a high-net-worth client against other clients within a business, perhaps picking the top five or 10 per cent as being an individual’s high-net-worth group.
Also questioning the idea of the high-net-worth client, Stackpool says the debate around them “is a fallacy of the investment mindset”.
He says because financial planners have acted only as investment advisers for a decade rather than holistic financial planners, they sought the client with the most money to maximise commissions.
He says a high-net-worth client would be better defined as a high-value client, a client who has a number of financial problems but also buys into the value proposition of financial planning regardless of the amount of funds they have to invest.
