Before a loan is made to a financial planner, just as much scrutiny is placed upon their dealer group as the practice itself, NAB national manager for financial planner banking, Daniel Lowinger, told InvestorDaily.
The typical due diligence conducted on a dealer group includes a review of the following: the licensee’s financial situation, its recruitment practices (including vetting checks), its compliance and supervision practices, and its complaints register (as well as the process for managing complaints).
“With institutionally aligned dealer groups it’s a lot easier [for us] because we know how they’re funded,” said Mr Lowinger.
“We want to be dealing with good, reputable groups that have good succession plans in place and who are well funded,” said Mr Lowinger.
In addition, institutionally backed licensees tend to have the resources available to put compliance processes into place so that they “don’t get into trouble”, said Mr Lowinger – although he acknowledged that larger operators have had their fair share of issues in recent years.
Many financial planners are under the mistaken impression that funding will be available to them (say, for a succession plan) regardless of which dealer group they belong to, said Mr Lowinger.
“When I speak to dealer groups, I say it’s important that you actually communicate this as one of your value-adds – that you actually have finance packages in place for your authorised representatives, because not everyone does,” said Mr Lowinger.
When it comes to smaller groups without the backing of an institutional parent, NAB needs to see evidence that they are going to be profitable “from day one”, he said.
He pointed out that most dealer groups are not profitable and tend to be ‘loss-leading’ entities that rely on vertical integration via their parent institution.
“The worst thing we could do is lend to advisers within a dealer group, and all of a sudden that dealer group falls over and all of the advisers are running to find a new home,” said Mr Lowinger.
NAB has lending agreements with approximately 50 dealer groups around the country, said Mr Lowinger. While a majority are bank-aligned, there are still “quite a few” that are independently owned, he added.
InvestorDaily understands that a number of authorised representatives of recently collapsed dealer group Australian Financial Services Group have financing arrangements with NAB. However, Mr Lowinger declined to comment on the issue.
