2012: FOFA on the horizon

One foot in FOFA

The 2012 fiscal year has been one of immense transition and preparation, as the Future of Financial Advice (FOFA) reforms climb above the horizon. While FOFA was originally intended to commence on 1 July 2012, Financial Services and Superannuation Minister Bill Shorten confirmed in April that Australian financial advisers and wealth managers would have an extra year to meet the FOFA requirements.

While the soft introduction would give the industry time to prepare for the reforms – and possibly save money – come 1 July 2013, the entire industry must be fully compliant.

As well as regulatory change, fiscal unrest in Europe and the United States was still dampening the movements of some advice businesses, and investors remained loyal, for security, to their large allocations to cash.

While the post-FOFA world has in a sense already taken shape, overall, 2011 was a year of refinement for planning businesses, and the outlook has shifted from a negative one to one that is looking forward to the brighter side of the reforms.

In ifa’s Top 50 Dealer Group Survey 2012, AMP Financial Planning (AMPFP) again secured the top spot. With 1,669 advisers as of 30 June 2012 and with the dealer group set to continue with its growth plans into 2013, reaching the 2,000 mark appears quite likely.

Millennium3 Financial Services and Commonwealth Financial Planning slid into second and third positions, with 842 and 791 advisers in their networks respectively.

RBS Morgans, Commonwealth Financial Planning and Westpac Financial Planning were amongst the strongest performers in terms of overall funds under advice (FUA).

In contrast, Macquarie Private Wealth and AMP Financial Planning both registered a decrease in FUA for the period, despite their high rankings in adviser numbers.

Mergers and acquisitions activity also continued as a result of businesses realigning in order to be sustainable into a still very uncertain future.

BT Financial Group recruited five financial planning practices from Commonwealth Bank of Australia-owned group Count Financial, which joined its Magnitude arm. In addition, Avenue Capital Management shut down its operations following a transaction with the IOOF-owned Lonsdale Financial Group.

AMPFP closing in on 2,000 advisers

The past 12 months have delivered good figures in adviser growth while powerhouse AMP Financial Planning (AMPFP) again retained the top spot, leaving a large gap between itself and Millenium 3 Financial Services, followed in turn by Commonwealth Financial Planning.
AMPFP added 145 financial advisers in the year to June 2012, bringing its total number to 1,669, previously 1,524.

The second greatest spurt in adviser numbers came from AMP Group-owned Charter Financial Planning, which increased its numbers by 130, now standing at 608 in total.

AMPFP managing director Michael Guggenheimer told ifa the dealer group’s growth was a result of its efforts and focus on the marketplace over the past 12 months, which is core to its strategy.

“The [result] is not from internal movement,” Guggenheimer says. “Growth is really part of the strategy of AMPFP. We have been pursuing a growth strategy that’s predicated around our belief that there’s a real gap in the market for people being able to access advice.
“We don’t have enough financial planners in this country to support the[wealth] needs of local communities right around Australia so if we want to be more relevant, naturally one of the dimensions I believe we need to focus on is growth.”

The AMP Horizons Academy also contributed to sourcing qualified professionals who wished to move into financial planning as their career.

In addition, AMPFP used its specialist recruitment teams around the country, working with interested parties in their communities who are seeking a self-employed proposition.

AMPFP assesses its future advisers against specific criteria and using profiling, which incorporates soft skills as well as the technical capabilities required of an adviser, Guggenheimer says.
“Not everyone fits those criteria so we use that as part of the selection process to validate whether people are more likely to be successful,” he says, adding that it was just as important to have a robust retention strategy to protect its adviser base.

“Our retention is very good compared to [the rest of the] industry. We look at ourselves compared to the self-employed models because there are certain models operating within the marketplace, but we think we’re doing well in relation to retaining our planners.”

Guggenheimer believes AMPFP can continue to grow its numbers throughout 2013 by supporting its existing practices and starting new businesses in more locations around the country.

“We have a great program in the Horizons Academy which is continuing to prove very popular, and we have our recruitment team, so the combination of the two means that we will grow next year.

We’re working very closely with our practices to prepare for any regulatory change and that’s obviously important to get right.”

Ranking third in ifa’s Top 50 Dealer Group Survey, Commonwealth Financial Planning (Commonwealth FP) added 48 advisers for the 2012 financial year.
Commonwealth Bank of Australia executive general manager of advice, Marianne Perkovic, says the group has been focused on bringing new entrants to the planning profession.

“A lot of our growth is coming from our graduates program,” Perkovic says. “Last year, we took 20 graduates on board and for this year, we’re looking to increase that to about 60.

“Most reports for FOFA are indicating that adviser numbers in the industry will go down, so given our size, what we want to do is support and promote new entrants coming through. [As a dealer group], you’ve got to be focused on graduates and we think that will then help us sustain the business going forward.”

Commonwealth FP’s retention strategy lies in its competitive advantage through brand as well as the strong referrals from its banking channel, Perkovic says.

“We’re also trying to promote the up-skilling and training to the planners but I don’t think we’re really doing anything innovative.

“With FOFA, we’re still in review but we’ll have a new remuneration and also KPI incentive scheme for the New Year. Like most financial planning businesses, we’re moving to quality advice so a lot of the rewards are about delivering good outcomes to customers.”

Commonwealth FP is more focused on the behavioural characteristics of advisers looking to join the group, Perkovic says.

“With FOFA, and bringing the trust element in, we look for people who are competent in customer engagement, service and experience,” she says.

“In the past, the industry was focused more on sales skills but that’s no longer a component through the recruitment process; it’s now about how they engage with clients and their ability to communicate effectively.”

Meanwhile, Charter Financial Planning jumped ahead as the fourth largest dealer group this year, previously sitting in ninth position.
Managing director Kevin Stone says the business has seen organic growth from existing practices as a result of its strong value proposition and business support, backed by the strength of the AMP group.

“An increasing number of advisers have been attracted to Charter's value proposition, in particular the Discovery program has been very successful in helping high calibre advisers start their own business,” Stone says.

“The stability and strength in our adviser numbers reflects adviser comfort with AMP, as all of our AXA Financial Planning practices have now transitioned to Charter as part of the withdrawal of the AXA brand from the Australian marketplace.”

Charter will continue to innovate and invest in initiatives to support its partnered advisers, he says.

Westpac Financial Planning moved from 13th place to 9th after bolstering its adviser network by 51, now at 462 in total.

“There has been no significant change in Westpac Financial Planning’s business model this financial year, but the business continues to achieve new standards in efficiency and productivity,” BT Advice general manager, bank financial planning, Mike Chesworth says.

“These include our introduction of initiatives to increase the capacity for planners to service more Australians while providing quality and highly valued advice, including the roll out of paraplanning to all of Westpac Financial Planning advisers.”

Chesworth says BT Financial Group is well-positioned for the FOFA changes, as the reforms are aligned to its commitment to quality financial advice and wealth creation for Australians.

“We are confident that we will be operating a fully-compliant FOFA model as ‘business as usual’ by 1 July 2013. Financial year 2013 will see a continued focus on growth, and we will be supporting this through growth in planner numbers and continued focus on ongoing advice.”

AMPFP’s Guggenheimer says one of the industry challenges for 2013 is to communicate financial planning as respected profession and the enormous amount of satisfaction that comes from the role.

“I think there is no better profession that financial planning,” he says. “I could not think of any greater level of satisfaction in sitting down with a client, understanding their current circumstances, establishing goals and then working out how they can make that a reality. If I look at other roles, I don’t believe there are people who would be doing that in what they do.

“Financial planning in my mind is about working with people in helping them secure their financial future, no matter what it may look like and I’m not just talking about people with lots of money. It could simply be budgeting or protecting their family and their income or basic investments.”

*Professional Investment Services were unavailable to participate in ifa’s Top 50 Dealer Group Survey this year. The group was ranked second in 2011.

FUA shuffles reflect continuing market volatility

Market volatility during the 2012 financial year continued to negatively impact dealer group funds under advice (FUA).

Of the 41 dealer groups that registered a change in FUA in the ifa Top 50 Dealer Group Survey, 18 recorded an increase in FUA in the 12 months ended 30 June, while the remaining 23 suffered a decline.

Of the top 10 dealer groups (based on FUA), six recorded an increase in the survey for the period, while the remaining four posted a negative result compared with the same period last year.

RBS Morgans, Commonwealth Financial Planning and Westpac Financial Planning were among the strongest performers.

RBS Morgans boosted its FUA by $21 billion to $55 billion; Commonwealth Financial Planning’s FUA rose $2.55 billion to $26.4 billion; and Westpac Financial Planning managed to achieve a small increase of $0.17 billion to $17,608 billion.

RBS Morgans’ managed branches director, John Lindsay, says the group’s increased FUM stemmed from increased activity in the hybrid fixed interest space, leading to opportunities for clients to invest.

“RBS Morgans has been heavily involved in the management of many of these offerings, including the CBA Perls VI, Woolworths and Origin Energy issuances,” Lindsay tells ifa.

“RBS Morgans also continues to offer extensive equities research coverage, with around 300 listed companies researched which is directly distributed to our clients.”

The group has also faced – and overcome – several challenges in boosting FUM over the year.

“The challenges we faced are all around client sentiment, with so much publicity around global macro issues and local issues,” Lindsay says.

“However, with a focus on creating investment opportunities for our clients, we are always on the front foot, communicating with our clients and adding real value to the relationships. Keeping in regular contact with clients in good times and in bad is core to our business model.”

The group plans to continue strengthening and diversifying its network across the country.

“[Also], the size of our client base provides us with the opportunity to grow funds under advice and market share when we have new investment opportunities and markets are favourable,” Lindsay says.

Commonwealth Bank of Australia (CBA) executive general manager of advice, Marianne Perkovic, told ifa that much FUA growth comes off the back of impending Future of Financial Advice (FOFA) reforms.

“We’ve really had a move to the ongoing service of clients, so we’ve been able to retain a lot more business,” she tells ifa.”That is now what the advisers have to do as part of their process.

“I think, as well, we’re trying to get advice and make advice more accessible to people.”

Commonwealth Financial Planning does not, however, have a specific goal for FUA growth for the coming year, Perkovic explains

“We focus on advice appointments and are looking through the referrals that come through to planners,” she says.

“Targets that people have will be more focused on revenue, not so much the funds.”

But not all those groups that made the top 10 saw improved results from the previous year.

Despite achieving second and third place on the table for FUA, Macquarie Private Wealth and AMP Financial Planning both saw a decrease in FUA for the period.

Macquarie Private Wealth’s head, Eric Schimpf, cites tough investor sentiment as lying behind its $3.07 billion decrease in FUA to $34.9 billion for the period ended 30 June.

“The market is still experiencing challenging conditions, which has made investors more cautious,” Schimpf tells ifa.

“However, our clients are still in equities and understand that investing in this asset class is a long-term investment strategy. This is where the role of advice can add real value. It is the job of our advisers to help clients pick the right equities to be in at the right time and help them make the right choices.

“As we look ahead to 2013, we will continue to focus on delivering quality advice to our clients and providing outstanding service [in order to boost FUA for the next financial year],” he said.

AMP Financial Planning suffered a greater dip, of $7.52 billion, taking the group down to $31.8 billion for the period.

“Although the ASX 200 Index fell by 11 per cent for the period from June 2011 to June 2012, AMP Financial Planning’s FUA declined by only 1.9 per cent for the same period,” AMP Financial Planning managing director Michael Guggenheimer tells ifa.

“So, while there continues to be ongoing market volatility, we believe there are good opportunities for financial planners to demonstrate the value they can add for their clients.”

Dealer group takeover activity ramps up

Steady interest in dealer group merger, acquisition and takeover activity during the 12 months to 30 June 2012 led to a number of groups being swallowed up.

Count Financial, Avenue Capital Management and Austock were among a number of firms that saw all or part of their business taken over by a competitor.

In March, BT Financial Group (BTFG) announced the recruitment of five financial planning practices from Commonwealth Bank of Australia-owned group Count Financial.

The five groups joined BTFG’s dealer group, Magnitude, within which they retained their “identity”, according to BT Financial Group’s head of advice, Mark Spiers.

“The success of their practices has been around their own identity and we will just work with them to help them continue to grow and develop their business,” Spiers said at the time.

Later into the year, dealer group Avenue Capital Management shut down its operations following its transaction with the IOOF-owned Lonsdale Financial Group.

“As a result of recent changes to the Avenue Capital Management Limited business, we will no longer be providing services effective 30 June 2012,” a statement on the company’s website said.

All 30 advisers associated with the group joined Lonsdale, the statement said.

“Effectively, the alignment of all 30 advisers to Lonsdale’s AFSL (Australian Financial Services Licence) means that the Avenue Capital Management AFSL will simply no longer operate,” Lonsdale chief executive Mark Stephens told ifa at the time.

All of the infrastructure and assets associated with Avenue Capital Management were therefore transferred to Lonsdale.

Then in July, Austock Group advised the market it had reached an agreement for the sale of its property business to Folkestone for $11 million.

Austock Group shareholders approved the sale in September and extended the date for completion to 28 September.

Austock non-executive chairman George Beaumont said that while the business had “considerable potential, Austock alone did not have the capacity to help it achieve that potential”.

Since the end of the financial year on 30 June 2012, takeover activity has only ramped up, with a number of deals set or expected before the end of the year.

On 27 September, CCP Bidco announced it had successfully obtained the required 50 per cent interest in ClearView Wealth’s company shares, making its offer unconditional and allowing the takeover to proceed.

In line with the implementation agreement between the two entities, Clearview Wealth declared an unfranked dividend of 2.2 cents per share to shareholders who accepted the offer.

“It is effectively done because the conditions that were outstanding a while ago for Australian Prudential Regulation Authority (APRA) approval, Foreign Investment Review (FIR) board approval and 50.1 per cent of shareholder acceptance [have been met],” Clearview managing director Simon Swanson told ifa at the time.

In August, the Clearview Wealth board agreed to an implementation arrangement with CCP BidCo after the Crescent Capital Partners Management subsidiary lifted its takeover offer for the company by five cents per share.

The takeover target informed the market it had entered into an implementation agreement with CCP BidCo after it increased its offer to 55 cents per share from 50 cents per share.

The board rejected CCP’s initial $220-million takeover offer in July, claiming the price was inadequate.

IOOF’s planned takeover of Plan B also had to overcome a few obstacles.

On 9 October, IOOF closed its offer period for the business with 98.10 per cent of Plan B’s shares.

The takeover bid, which was subject to an 86 per cent shareholder acceptance, was previously scheduled to close on 25 September, following an extension from the original closing date of 11 September.

The board of Plan B said a fully franked dividend of three cents per share will be payable to Plan B shareholders on the Plan B register on 26 September.

As a result of the takeover, Plan B underwent a series of board changes. Chief executive Andrew Black stepped down from his post at Plan B and company chair Bryan Taylor, executive director Craig Lubich and independent director David de Burgh each resigned.

While many major takeovers have gone ahead prior to the end of the calendar year, many companies are still progressing with their growth and acquisition strategies as the trend towards industry consolidation continues to ramp up.

Guardian Advice, for example, plans to use an organic growth strategy to accelerate its adviser numbers.

The Suncorp-owned financial services firm plans to increase its adviser body to more than 200 over the next three years, Guardian Advice executive manager Simon Harris tells ifa.

“What we are seeing is a flight to security [during] uncertainty and regulatory change,” he says.

Given recent regulatory changes and the pressures of a tough economic environment, Guardian expects the trend in the consolidation of smaller boutique licensees to accelerate, he says.

As a result, in addition to attracting new advisers, the firm also plans to review acquisition opportunities.

“We’re continuing to review opportunities to acquire small and medium sized Australian financial services licensees where they might have synergies or scale benefits for our group. That could really accelerate our recruitment stance,” Harris says.

ifa also understands that AMP plans to purchase a further 10 per cent stake in Futuro Financial Services within 18 months before acquiring the balance of the company by 2017.

“Make no bones about it, the idea is to eventually have 100 per cent,” Futuro managing director Dennis Bashford tells ifa.

“They [AMP] will take another 10 per cent in 18 months and then probably the balance in four to five years. Whilst we have the option to sell before then I don’t believe we’ll be doing that.”

Following AMP’s initial 10 per cent minority stake in March this year, Futuro has been experiencing strong growth, Bashford says.

Futuro will continue to operate under its own license during the initial stages of the transaction and eventually will make the transition to AMP-owned dealer group Charter Financial Planning.

Bridges leads with number of female advisers

At its birth, financial planning was a male-dominated world and looking back even one or two decades, female advisers were few and far between. According to the most recent data from US-based Cerulli Associates, females represent just 7.9 per cent of the country’s advisory businesses. While the Australian landscape has improved significantly and welcomed more women into the profession, no one disagrees that there is still room for improvement.

Bridges Financial Services, part of the IOOF group, recorded the highest percentage of female advisers out of all ifa Top 50 Dealer Group Survey participants this year.

Almost half of Bridges’ 259 advisers – 47.8 per cent – are female.

“Bridges has a long-standing development program for its network that encourages people looking for a career in financial planning to progress through the three levels of Authorised Representative status – restricted, conditional and unrestricted,” Bridges’ chief executive, Michael Carter, told ifa.

Our restricted authority holders are able to gain valuable experience in client-facing roles, often taking and submitting share trades, which provides good grounding for a career ultimately as a full-service financial adviser.

“Many of our successful, fully-fledged female advisers have started in the back office of a practice and have progressed through the business in this manner. Importantly, a large number of Bridges’ most successful practices have had and continue to have a female principal at the helm.”

The group’s program has encouraged an equitable gender balance across its network and this is seen as one of Bridges’ strengths.

While the growth of Bridges’ female advisers was not intentional, Carter upholds the need for an open and supportive culture that will allow career opportunities to foster, regardless of gender.

As a strong partner of choice in the mutual Australian deposit-taking institution sector, Bridges has found that its gender balance reflects positively on the broad range of relationships it managers and fosters at all levels, Carter says.

“Additionally, and particularly in the retiree market, some of our clients actually prefer to deal with a female financial planner,” he says. “But while there are a number of paths into the role of a financial planner, it is all about a professional service and the provision of quality advice, not gender.”

Bridges certified financial planner Nicole Gyde-Parslow commenced in an administrative role at Bridges after completing her studies at business college. After working for the group for a number of years, she completed a Diploma of Financial Planning and began practising officially as an adviser in 1999, initially under a mentor arrangement with a senior adviser.

“Historically, Bridges has been well known in supporting its female planners [as] the founding managing directors saw the benefit of internal growth within the company, and this is demonstrated by the number of long-term planners, para-planners and support staff that still exist,” Gyde-Parslow says.

“I wouldn’t say that the female planners are treated any differently to the male planners; however, being treated as an equal is supportive in itself. The industry as a whole has evolved, as society has, to having a higher regard for women in general.

“Financial decisions have historically been made by men in most relationships but the industry now recognises that women make an equal contribution to financial decisions. The culture I have seen develop is that of empathy for each other and the clients we deal with. I find the industry to be a lot more respectful than big business is usually perceived [to be].”

Businesses brace for opt-in impact

Of the 50 dealer groups reviewed in the ifa Top 50 Dealer Group Survey 2012, 38 said opt-in would affect their business model when the Future of Financial Advice (FOFA) reforms are implemented on 1 July next year.

AMP Financial Planning’s managing director, Michael Guggenheimer, says that generally, implementation of FOFA measures such as opt-in will spark a change in business processes overall.

“Opt-in, like other aspects of FOFA, will require change in business processes for AMP Financial Planning – and practices,” he tells ifa. “We are committed to working with our practices to make sure everyone is in the best possible position, given that changes are inevitable.”

RBS Morgans has also noted that the opt-in requirements will impact the group’s business.

Managed branches director John Lindsay tells ifa that despite the onset of the changes RBS Morgans will continue to improve its service delivery model and its associated documentation.

“All this brings with it increased compliance and training requirements, which over time will ultimately provide the client with higher levels of confidence and satisfaction in the services we provide,” he says.

The FOFA reforms focus on improving the quality of financial advice, particularly product recommendations, and expanding the availability of more affordable forms of advice.

They are expected to ultimately improve investor protection and instil confidence in the financial advice industry. Opt-in and fee disclosure is one of the key components.

Advisers will be required to request their retail clients opt in or renew their advice agreements every two years if they are paying ongoing fees.

In addition, an annual statement outlining the fees charged and services provided in the previous 12 months must be provided to clients paying ongoing fees. This means advisers will be in regular contact with, and will need to demonstrate the value of the services they are providing to their clients.

As an alternative, the Australian Securities and Investments Commission (ASIC) has been given the power to exempt advisers from the opt-in provisions where they are bound by a code of conduct, approved by ASIC, which achieves the same outcome.