Anne Fuchs – Director – Pinnacle Practice

My Dealer Group and Tepana Financial Indices (TFI) are delighted to announce a partnership and the launch of a suite of three indices that provide licensees with quantitative analysis on how well advisers rate them.

The indices include:
1. Adviser Loyalty Index (Net Promoter Score (NPS) measuring loyalty and adviser retention)
2. Licensee SQI (Service Quality Index quantifying satisfaction and importance of various service elements together with reasons for any dissatisfaction)
3. Adviser API (Adviser Professionalism Index: Education and Training)

Together, the indices offer licensees critical quantitative measurement on how advisers rate them in relation to their competitors, their perceived strengths and weaknesses and their opportunities for business growth. 

“Since the launch of My Dealer Group by Pinnacle Practice a year ago, we have gained considerable insight into adviser satisfaction levels and into what factors differentiate better licensees from the pack,” says Pinnacle Practice Director, Anne Fuchs.

“The partnership with Tepana Financial Indices means we can quantify information and also offer NPS and SQI analysis to licensees.” 

The suite of indices is derived from The Adviser Satisfaction Survey, the market leader in measuring licensee service satisfaction levels developed by TFI in 2003. TFI analyses the factors that attract and retain quality advisers and drive loyalty.

“We believe this research is critical to the survival of licensees in a post-FoFA environment,” Ms Fuchs said. “Dealer groups benefit from this kind of analysis because they can see what advisers value and adjust their service offerings to meet the market.”

Principal of TFI, Kathleen Tepana, said an NPS diagnosis can be likened to a blood pressure analysis, and is an indicator of business health, while the service quality index reveals the underlying drivers of adviser satisfaction and reasons for likely growth so that a licensee can implement a plan to remain relevant and rectify any problem.

“The financial indices offer licensees two levels of raw data in the form of quantum analysis and dealer group scores, the latter of which is left to the licensee to interpret,” Ms Tepana said. “Above this is a more comprehensive service that interprets the data, offers insights into why licensees may be underperforming, and provides recommendations for strategic planning.”
 
The Net Promoter Score and Service Quality Index reports identify what matters to advisers, as well as what the dealer group is good at and how that differs from their key competitors.

“It is also a powerful quantitative adjunct to metrics, such as funds under advice per adviser, to measure and monitor the growth and ‘stickiness’ of adviser relationships,” Ms Tepana said.

“Those dealer groups with strong differentiated stories and offers that resonate with advisers and their clients are the ones that will survive and prosper now and in the future.”

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“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.”

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“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.”

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“The number one thing advisers contacting us via our My Dealer Group service want, is choice of platform on their APLs,” she said. “They are well aware that they have the primary relationship with the client and are therefore in the driver’s seat in terms of the advice proposition and so they don’t want to be told by their dealer groups how to run their businesses. They have always felt this way, but given the additional pressures they face with FoFA and difficult market conditions, this sentiment is now more emotionally charged than ever before.”

Ms Fuchs said the desire for platform choice is particularly prevalent amongst younger advisers who are not entrenched in a dealer group culture.

“They have many years ahead of them as professional advisers and are not interested in making money out of product,” she said. “Their value offering is about the delivery of advice and therefore they want to be able to use the products that are most appropriate for their clients’ needs.”

However, Ms Fuchs said that judging by the feedback from advisers, many licensees appear to be heading in the opposite direction.

“Institutional licensees appear to be shrinking their APLs, citing the FoFA Best Interests Duty and some non-institutional licensees are following their lead, believing they have to in order to survive,” she said.

“But the conversations we are having with advisers indicate that all this kind of vertical integration will do is drive advisers away. While advisers who work outside a vertically integrated model can pay more in fees and receive less in terms of support than those who work within one, it is a price many are prepared to pay.”

Ms Fuchs said My Dealer Group is referring advisers to only one institutional licensee. “This is because this particular licensee provides advisers with the flexibility advisers are looking for,” she said.

By not forcing incoming advisers to convert to their platform, Ms Fuchs said this licensee is able to successfully recruit new advisers to their ranks and, due to scale, the advisers enjoy the benefits of a full service dealer group at a reasonable price.

“It’s a little like an Anglican in a Catholic school,” she said. “They have similar values and beliefs but one doesn’t force the other to convert to their particular version of the Faith.”

Ms Fuchs said she is also seeing a trend towards smaller groups of advisers banding together to form co-operative licensee businesses.

“These co-ops want to establish a sustainable and reasonably profitable non institutional model that allows advisers to run their businesses the way they want to,” she said. “They are looking for likeminded advisers to join them to make sure the model is sustainable.

“At the end of the day, the feedback we are getting from advisers is that dealer groups will need to continue to evolve in order to attract advisers.”

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Pinnacle Practice Director, Anne Fuchs, who launched My Dealer Group in Brisbane last month, said she is receiving multiple inquiries a day from advisers.

“We expected that we would have to put a lot of energy into direct marketing to advisers to alert them to our services and let them know that we are here for them if they need help finding a new licensee relationship,” she said.

“However, what we’ve found is that advisers are calling us – it’s a bit of a surprise.”

The My Dealer Group service offers independent, unbiased licensee/adviser compatibility assessments. Licensees pay a fee to become a member of the My Dealer Group panel and My Dealer Group works with them to understand their unique value proposition. My Dealer Group then showcases their offering to the advisers identified as most suited to their businesses.

Ms Fuchs said there is a common theme amongst the advisers who are contacting My Dealer Group.

“It’s love on the rocks for these advisers; they have clearly fallen out of love with their licensees,” she said. “The passion has gone, they’ve outgrown their current licensee and are looking for a new relationship to energise and motivate them.”

Ms Fuchs said she is fielding inquiries from advisers all over Australia who are in relationships with a range of licensees.

“We’ve had advisers call us from most of the mainland major capital cities but also from regional areas in Western Australia, Tasmania and Queensland,” she said. “And we’re not just taking inquiries from the small end of town. We’ve also seen interest from some well-established and very big adviser practices.”

My Dealer Group showcases licensees to advisers at no cost to the adviser.

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Pinnacle Practice Director, Anne Fuchs, who launched the service, said that while advisers are currently being rigorously pursued by licensees, they often don’t know how to evaluate which licensee will be their best match.

“In many respects advisers are spoilt for choice. Every licensee is a potential suitor and the grass often looks greener on the other side of the fence,” Ms Fuchs said.

“But like any relationship, success depends on compatibility. And to date that’s been the hard part for both advisers and licensees – discovering whether they are compatible enough to build a successful long term relationship.”

The My Dealer Group service offers independent, unbiased licensee/adviser compatibility assessments. Licensees pay a fee to become a member of the My Dealer Group panel and My Dealer Group works with them to understand their unique value proposition. My Dealer Group then showcases their offering to the advisers identified as most suited to their businesses.

“We are currently in the final stages of negotiation with a number of well-respected, national licensees,” Ms Fuchs said. “While we believe they all want the same thing – to recruit more adviser practices – they are not actually in competition with each other because they each have something different to offer. Some are institutionally owned, some are not; some are large, some are small; some are very product manufacturer-based in their models and others are very independent. We believe that what doesn’t suit one adviser will suit another, so we are confident we can help make the right matches.”

The match-making component of the service is free for advisers. The process of identifying suitable matches revolves around a confidential fact-find.

“Advisers complete the fact-find which requires them to rank what they are looking for from a licensee, in order of importance.”

Items on the menu include things like:

• Commercial terms
• Culture • Technology
• Advice
• Systems and processes
• Lead generation

“The fact-find also gathers information around where the adviser’s revenue comes from, what kind of business they specialise in, the markets they are targeting, the product manufacturers they use to implement their advice, and so on,” Ms Fuchs said.

“This structured approach makes the process more efficient and introduces a degree of objectivity.” Using the data gathered, My Dealer Group then matches advisers with potential licensees.

“What we ultimately deliver to licensees is qualified leads for their business development managers, or, if they prefer, actual introductions to advisers – just like a dating agency,” Ms Fuchs said.

“We believe it’s a win/win situation for both parties and at the end of the day, what we expect to see is happier and more profitable adviser/licensee partnerships.”

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