The number of truly non-aligned dealer groups is rapidly shrinking, leaving little choice for advisers looking for freedom from the large institutions, according to Pinnacle Practice Director, Anne Fuchs, who operates the My Dealer Group matchmaking service.
“What advisers are looking for when they come to me seeking a new dealer group is independence from institutional influence,” Ms Fuchs said. “Unfortunately that part of the market is shrinking at an alarming rate of knots. The number of truly non-aligned dealer groups, that are well-established and have a good track record, is now so small I can count them on two hands and have fingers left over.”
Ms Fuchs said many non-aligned dealer groups have institutional ties via wraps and platforms and institutions are increasingly taking strategic shareholdings in boutique groups that are running IFA models, in order to attract more advisers into their dealer groups.
Ms Fuchs also said advisers don’t seem to fully grasp the ownership structure and commercial realities of non-institutional licensee businesses. “They need to understand what it costs to run a dealer group and the impact of FoFA and conflicted remuneration legislation on commercial terms,” she said. “There is an absolute mismatch between what advisers want, what they think is available at the price they are prepared to pay and what is actually available.”
Part of the problem, Ms Fuchs said, is that advisers currently working with institutionally owned dealer groups pay heavily subsided dealer fees and have access to extraordinary resources.
“I am not sure many advisers in these aligned networks truly appreciate this,” she said. “In many cases the penny only drops about how little they have been paying once they have decided they want out. They then have some very commercially difficult decisions to make. It is not uncommon to see advisers decide that the cost to be non-aligned isn’t worth it.”
Shrinkage of the non-aligned advice market is one of the unintended consequences of the Future of Financial Advice (FoFA) reforms, which Ms Fuchs thinks is very sad.
“The fact is that the non-aligned market was not this small this time last year,” she said. “What the government and ASIC probably haven’t foreseen is that the loss of this whole section of the advice market depletes consumer choice.”
Ms Fuchs said this contraction of choice means major institutions now control the industry; advisers, who really want to act independently of institutional influence, have fewer places to go and consumers have narrower service models to choose from. “I question if that is in keeping with what FoFA originally set out to achieve for consumers,” she said.
While the industry must accept legislative and cultural change, Ms Fuchs said it should not stifle genuine business enterprise at a grass roots level.
“Most advisers these days are university trained and highly skilled. They are seeking something that will support their business model, which involves a deep understanding of the client’s goals and objectives and always puts the client’s best interests first,” she said. “It just doesn’t sit well with their business and professional values to deliver a standardized, one size fits all approach to financial advice.”
