Increased pressures on margins, relentless approaches and the advent of new competitors have weighed heavily on Australia’s privately-owned dealer sector.
InvestorDaily spoke with a number of industry participants who revealed the environment for privately-owned groups is, in their view, clouded by the federal government’s Future of Financial Advice (FOFA) reforms and global economic uncertainty.
Many believe further consolidation and potential for pressured sales is inevitable.
“The mood isn’t good and that’s predominately because there is still uncertainty out there,” Infocus Money Management managing director Darren Steinhardt told InvestorDaily.
Steinhardt said the uncertainty has now moved to the client level, with clients now starting to question their adviser’s ability regarding the performance of the client’s assets.
“What that does is that when performance is really tight it just makes clients look at all the other areas and the area they are looking at most closely now is fees,” he said.
The change in client mindset is also affecting the client base of advice businesses, he said.
“Everybody is losing clients, some many and some a few . but it’s only the disengaged clients that are really at risk. Anybody who says they are not [losing clients] isn’t telling all the truth,” he said.
“One thing we’re seeing which has really reared its head in I suppose the past six months is the movement of clients with smaller account balances back to industry superannuation funds.”
As a result of the environment and the climate, the industry is also witnessing new competitors emerge, he said, making reference to Mortgage Choice’s decision to open a financial planning division.
Asked whether the uncertainty and new competitors had placed pressure on the privately-owned dealer market to consider selling, Steinhardt said it had.
“I always feel pressure absolutely and it’s no secret that any privately-owned group or predominately privately-owned group with a reasonable number of financial planners on board is getting a knock on the door every month from somebody different,” he said.
Madison Financial Group chief executive Tony Hartley said he has also been approached regarding his business.
“We have been approached and to be frank right now, we don’t believe it would be the right time to sell regardless if that was our intent or not,” Hartley said.
“[So] no we’re not engaged in any discussions to sell. We have had approaches, we’re more engaged in positions of let’s have a look at what’s available to buy. we’re more willing as a group to look at the future than selling out the future.”
Lifespan Financial Planning managing director John Ardino, whose group has also received approaches, said the dominance of institutions is “obviously is increasing”.
“I suppose some of us feel that it can only improve the position and desirability of the independents,” he said.
“There’s a lot of fear and uncertainty about what FOFA will produce. But looking at it from a long-term, cyclical view point, it could well be that the institutionalisation of advice might actually unravel over the next five or 10 years and then the pendulum swings back more in favour of IFAs who can pick from the whole market the most suitable products and advice for clients.
“[However] there’s no uncertainty that would drive us into the arms of a big brother or big sister or someone.”
Broking firm Kenyon Partners managing director Alan Kenyon said seller appetite from within the privately-owned dealer group space has increased.
“I think until middle last year people were knocking on doors and were being told that everything is for sale at a price, but I think [many of them] have now started to [question] how are they going to continue to operate and make money,” Kenyon said.
“The kind of deals that we think will work is where someone will attract a big brother, they will do a serious strategic business planning with some objectives and milestones and the capital that owners of the dealer groups will get will be based on achieving those milestones over time.
“That will be recruitment, individual business performance, it will be profitability and a cream on the cake will be use of dealer services and products.”
In recent times, Australia’s privately-owned dealer group sector has witnessed a number of purchases by institutional groups, among them, the takeover of Count Financial by Commonwealth Bank of Australia; IOOF’s acquisition of DKN Financial Group; and AMP’s minority purchase of Futuro Financial Services.
