Countless independent firms are being forced to move their business to larger dealer groups, as they struggle to keep up with increasing costs from regulatory demands. Over the past 12 months, three large members of the Association of Independently Owned Financial Planners (AIOFP) have been lost to institutional buyouts. Smaller groups are tending to sell to their peers and remain members though, says AIOFP director Peter Johnston.
Despite this increased consolidation in the sector, research shows that demand for independent advisers is still high. CoreData’s latest survey revealed that, of respondents who received financial advice, 33.4% preferred non-aligned advisers, followed by 24.9% using aligned advisers and 12.5% using accountants.
Johnston says the AIOFP has seen a 50% increase in corporate and consumer demand in assessing members for advice over the past 12 months. “Consumers are more educated today and can recognise the difference between an institution selling their products and an independent offering a service,” says Johnston.
“The frustration consumers are finding is trying to identify an independent adviser as aligned advisers are allowed to masquerade as independent advisers… Why ASIC dispensed with the need for all institutionally aligned advisers to display their owner’s details on business cards and all marketing material is very confusing.”
But independents are still struggling with increased costs and regulatory demands. “All practices have experienced a down turn in revenue over the past 5 years with clients running scared of equities and demanding cash options.”
More than 90% of the industry is cross subsidised by either platform revenue or SMSF set up and audit fees, says Johnston. “For the true independents to survive going forward they have to adjust their business model to capture a share of the administration revenue by either offering SMSF’s or entering into an independent vertically integrated business model.”
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Matthew Lock on 13 Mar 2013 09:41 AM
Morning Peter, at the risk of appearing obtuse (I haven't had my second coffee yet) what exactly is an independent vertically integrated business model?
Bruno Festa on 13 Mar 2013 11:33 AM
Yes Peter, please explain what is an independent vertically integrated business model?
GAB on 13 Mar 2013 01:16 PM
ASIC couldn't give a rats ar*e whether a firm is independant or aligned. Nothing in the 'reforms" (cough) package provides any incentive to become independant. In fact ASIC would much prefer advisers be aligned with the Big Four who are cashed up. The Big Four have the resources and scale and propensity to compensate investors for losses...that is the underlying message being given by ASIC through this reform process.
Matthew Lock on 13 Mar 2013 02:15 PM
Hi GAB, I'm not sure about the context for your post but I think you're saying is that ASIC is happy to see another $4bil in investors funds trashed just so long as the organisation who stuffed up is cashed up and can make good the payouts...is that what you're saying?
GAB on 13 Mar 2013 03:22 PM
It has been the subject of many a discussion lately. On a positive note, financial advisers and investors are alot wiser after the GFC and maybe we won't see the same level of disasters again....or will we? ASIC want investors compensated, PI cover premiums are going up....the banks have the cash. Makes sense really that the regulators would want to see the smaller players mopped up by the banks. Doesn't mean they can't still provide a great service, just means better protection for the clients.
Peter Johnston - AIOFP on 13 Mar 2013 03:40 PM
Pat, or is it Mr Hempton, pull your nasty vindictive head in. Matthew and Bruno, send me your email address and i will send you a model we have put in front of ASIC. email@example.com
Peter Johnston - AIOFP on 14 Mar 2013 09:24 AM
Gab/Matthew, you are right, but just remember who allowed these products onto the market in the first place and the conflicted research houses that were paid to rate them positively. Those independents who survive will be in huge demand from consumers that is why an independent version of a vertically integrated model will work for ASIC and the advisers.
Pat on 15 Mar 2013 10:52 AM
Peter - in what way am I being vindictive? I have no reason to seek revenge against you or the AIOFP. I just don't see the correlation between AIOFP membership and independence.
And I don't know what you mean by the reference to Mr Hempton.
Pat on 15 Mar 2013 11:01 AM
Peter, why will you not accept that, in the case of Astarra/Trio, AIOFP members received commissions and other payments from Astarra/Trio that would have influenced the decision to recommend those funds?
Peter Johnston - AIOFP on 17 Mar 2013 10:33 AM
ok JH we now confess to your gutless sniping? Just for the record, we had 7 members of 150 taking commissions like 99% of the industry did up until recently and the 7 members were also members of the FPA and AFA. And lets not forget Trio was a sophisticed fraud where the regulators and research house did not do their job, that is the view of the Senate Committee. Yes you were clever in finding it first so why don't you put you energies into something more constructive for the industry?
Coastie on 18 Mar 2013 11:16 AM
Gees a bit touchy there Peter Johnston. Still smarting from the fact that u ran away from your bet with John Hempton over the Trio/Astarra debacle?
John Hempton on 29 Mar 2013 08:31 AM
No Pat is not me. And I am amused and your repeated paranoia about me.
I might have something to say aout it on the blog..