The new breed of degree-qualified, professional financial advisers is casting a critical eye over dealer group services fees and looking for value for money, according to Pinnacle Practice Director, Anne Fuchs, who runs adviser/licensee matchmaking service, My Dealer Group.
“Many of the financial advisers who come to us are in their 30s and 40s running practices within one of the big licensees,” Ms Fuchs said. “They are career financial advisers, fast-tracking their businesses, but their revenues are not at the level where they can justify paying for the bells and whistles offered by the big end of town, such as BDM support and hands-on practice management support.”
She says some of these advisers are on older packages that provide open architecture in terms of Approved Product List (APL)s and are paying a premium in licensee fees. “In some cases they are paying $15,000-$20,000 more than they need to,” Ms Fuchs says. “That’s like paying for broadband services and getting dial-up. It’s an absolute fortune for them and it’s money they believe can be better spent.”
Ms Fuchs said some licensees are very dismissive when defending their dealer group fees, arguing it’s the cost of offering an open architecture APL.
“The problem with this argument is that they instantly jump to examples such as Morrison Carr to prove their point,” Ms Fuchs says. “This is very unfair. We are aware of a number of quite small niche licensees that have a strong corporate governance culture. These dealer groups have a very strict quota on the number of advisers they service and very clear advice process requirements to manage their compliance risk. Importantly, this makes them affordable to younger advisers because they are only getting the absolute essentials.”
Ms Fuchs says she is very disappointed by comments currently being made about smaller licensees in the wake of the cancellation of Morrison Carr’s financial services licence.
“The level of judgement and gossip undermining boutique groups and practices is quite malicious,” she said. “There are people in the industry tarring all small licensees with one brush; suggesting that because a licensee is small, inexpensive, doesn’t have a cast of thousands and yet still offers an open APL, it can’t have good corporate governance and robust levels of compliance,” she said. “I absolutely reject that argument. In the work we do matching advisers with licensees via My Dealer Group we have found there are some really good quality boutiques out there.”
Ms Fuchs also highlighted that big doesn’t always mean better. “As we all well know, there are some very large dealer groups that are currently, or have been, in enforceable undertakings. For people to say that operating under a smaller AFSL translates to a risk to the adviser in terms of compliance and corporate governance is extremely unfair.”
No dealer group, regardless of size, can afford to ignore the demands being made by the new breed of adviser, according to Ms Fuchs.
“In fact, these are the advisers dealer groups should be recruiting, because they are very well-educated, they don’t have ingrained bad habits, they’re growing revenue businesses and, generally speaking, they are working with other professionals in centres of influence to build their business,” she said. “This is a huge growth segment. Rather than being dismissive of their needs, dealer groups must develop a much better response to them. My advice is: ignore them at your peril.”