Are one-man bands going extinct?

Speaking in a recent episode of The ifa Show podcast, The Advisers Association chief executive Neil Macdonald discussed the sweeping changes AMP had made to its advice business in the last 18 months, pointing to single-adviser practices as the most affected.

“We've not been given the details by AMP, but looking at what we see, we can sort of make some hypothesis of what we think is happening. I think the common theme for all of the first round of planners [that were exited] was they were single planner practices,” Mr Macdonald said.

“There's two aspects to that. The first is this expectation of continuous advice being provided. So, how does a single planner practice continuously provide service to clients?

“I think the second thing is with all of the [regulatory] changes, it's very hard for a single planner practice to keep on top of all those. And then from the licensee perspective, it costs you almost as much to do an audit on a single planner practice as it does to go and see 10 advisers in the same building. So, I think it was uneconomic from the licensee perspective.”

Late last year, IOOF also flagged a minimum profit margin it would work with going forward across practices in its employed dealer groups Shadforth and Bridges, following a restructure that saw self-employed Bridges advisers transitioned to other groups.

“We’re working with those people that had self employed businesses to transition to our self-employed brands – that body of work will be finished around 31 March,” IOOF chief advice officer Darren Whereat said in December.

“It will mean we’ll have two owner-operated brands, Shadforth in the high-net-worth space and a mass market opportunity in terms of Bridges. We are aiming for EBITs over 30 per cent in these entities, which will be generating $90 million worth of recurring fees from clients.”

The most recent market update from IOOF suggests the institution is exiting low-value practices at a significant rate, having recorded $1.3 billion in net outflows in its advice business in the last quarter of 2020.

With AMP having flagged in its 2019 advice strategy reset that it intended to focus on more profitable and scalable metro-based practices, Mr Macdonald said the smaller AMP-aligned practices that were often regionally based were left with the options of merging with another business or potentially revising up their fees.

“I think what it comes down to is for the individual firm to figure out whether their business model is sustainable and if it isn't, what do they need to do to make it sustainable?” he said. 

“So, one option would be to go and merge with another firm. Another would be [to say] ‘what do I need to do to change my value proposition to my clients? What do I need to do to sort of shore up my revenue? What do I need to do to make sure I'm profitable?’”