The move away from commissions will have the biggest impact on small, independently-owned licensees and could force some out of the industry altogether, a dealer group chief has said.
“With dealer fees having to be so low in order to be competitive in the adviser market, many of the independents have come to rely on volume bonuses or platform marketing allowances in order to survive financially,” Futuro Financial Services managing director Dennis Bashford told the firm’s annual Business Directions Forum this month.
“Somehow they will have to find ways to replace this lost income in order to remain viable, and it will mean that some will go.”
Bashford said the changes would push licensees and the financial planning industry towards institutional ownership.
“A Morgan Stanley survey undertaken late last year found that the top six institutionally-owned firms had between 73 and 82 per cent of their clients’ funds invested in their parents’ products,” he said.
“You don’t have to be Einstein to come to the conclusion that for the transactional-focused institutions, it is more about the distribution of their products than the servicing of their clients.”
As a result, advice would be “dumbed down” and product selection restricted, he said.
“This is already occurring in that we already see some dealerships forbidding the use of margin lending and some product types despite the fact they have a legitimate place in the provision of quality financial advice,” he said.
“The consumer then suffers because the licensees are more interested in covering their own backside than in doing what is in the best interests of the client.
“Planners will be affected because their licensee will restrict them to providing clients with vanilla advice rather than that which is in the client’s best interests. They will be forced to offer canned advice.”
Meanwhile, he also noted advice principals should not view staff remuneration as an expense but rather an investment in the sustainability of their business.
“In asking most of our planners what would make the biggest single difference to the success of your business, the response has been: ‘If only I had top-line support staff to take me away from the daily grind of having to run my business, that would free me up at least a day a week. This would give me at least one extra a week which, in turn, equates to an extra $3500 in revenue,'” he said.
“They appreciate that such staff does not come cheap and would set them back about $65,000 per annum.”
However, planners currently struggled with where they would find the additional $65,000 for staff salaries, he said.
“Well it’s not rocket science – it comes from the additional $160,000 a year that being freed up will create,” he said.
“So invest in your people, don’t skimp on them. Be patient and only bring on people who you are confident can give you and the business what it needs. Have the courage to spend the money and have a plan to manage them.”
