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?’”
Who listens to these corporate nobodies anyway. I’m a one adviser practice with good support. My profit is around 80% of revenue with revenue at $750k. I remember the idiots At AMP telling me a good advice business had an EBIT of 12%. I got up and walked out. These guys don’t know what they are talking about and should be ignored.
I’ve read these comments and every single comment here is all spot on. Every single comment has called Bullshit. 25 years I’ve been around,and it’s funny how every few years some guy making money from FUM/AUM states the “one man band” is dying… Yet, here we all are,…. and it’s the insto’s and large licensee’s and the leaches, they are the one’s that are dying. You can kick us, you can beat us, you can slander us in the media, you can rip us off, you can blame us for your sins, you can fool us…..you can divide us….but we are the champions…..[b]because our clients love us to death…and we add value every single day…..and whilst ever that is being offered we’ll keep going…So I say bullshit…so funny…[/b][b][/b]
Sarah, maybe you should have interviewed a few of us single adviser practices and you might find the opposite is true. Thanks to the great work of the majors, I am getting more clients than ever. So far have had 6 genuine enquiries this month alone.
this is called economic rationalism. something that a political senate party made noise about for many years.
it’s bad micro economic policy – something that government departments don’t criticise, but rather run with it.
politicians need to stand up against govt departments – but too late for the financial advice sector. sadly.
Planners livelihoods shouldn’t be on the whim of some dealer group. Remember, you service us… There is something stupidly wrong that with swipe of a pen your dealer group asks you to move on… Perhaps individual licensing should be a thing…
“you service us…” So funny, so naive. They licence you, you serve them.
To this day, I do not know what IOOF is trying to achieve. Over thirty years ago at an adviser conference, we were told that the single entity financial planning practice will not survive. Good advisers who are excellent communicators will always survive. It is the larger practices I and their high associated operating costs (ever increasing with overcomplicated compliance requirements). Regardless of what Darren Whereat ihas been quoted as saying (or misquoted), I’m still not getting a clear picture of IOOF’s game plan is.
Happy to spell out IOOF’s game plan for you… get as much FUM in IOOF products as possible. That’s it.
IOOF licensed advisers are just a distribution channel for IOOF products. All this stuff about advice firm rationalisation is just simplification and cost management of the distribution channel. IOOF doesn’t make money from advice. It is not their business. They make money from products.
Any IOOF licensed adviser who isn’t currently being pressured/cajoled/induced to use more IOOF products is still in a honeymoon period. It will soon change. (Badged versions of 3rd party products for which IOOF gets a payment, are still effectively IOOF products).
One man bands can be perfectly viable and sustainable for their owners. They just aren’t profitable for large licensees. Licensee compliance costs are broadly proportional to their number of CARs. It’s not worth it for them to have lots of small CARs weighing on their costs.
The solution for one man bands is to get their own AFSL. As long as they aren’t running inhouse products or complex strategies, self licensing is fairly straightforward for experienced advisers who have completed their FASEA training. And it’s no more expensive than most dealer fees.
100% correct. Neil Macdonald represents and is talking about institutionally licensed one-man practices.
This is written from the perspective of businesses that make revenue from FUM/AUM. One person operations typically make money from providing Advice. Those operations are doing pretty good.
This article is just scaremongering. Its a failing old fashioned instos look at the industry. They should know that having 500 clients per adviser was never going to work with fee for service, but amp still sold books with that many clients in them to individual advisers! Then sacked them as they cant service everyone, well no sheet sherlock . I have 100 clients that I service very well, I pay the same fees as a practise with 1000 clients. Its not as easy to audit 5 people than one, more people more risk. Its all done remotely now. If any other one person practises are reading this above dont take any notice, we are the ones that have the advantage, not the big instos, they are way out of touch with reality sitting there in head office.
100% agree.
I would like to thank the brilliant decision making of these excellent institutions. In my humble opinion (and almost 30 years industry experience), I know that I can help sole practitioners earning $100K to $200K to double in size every two to three years through plenty of effort and hard work to achieve personal and professional success plus lots of happiness to go with that.
This approach of creating forced mergers does not work and often ends in disputes over dumb stuff like what football team do practice principals support. Profitability and growth for the business or the adviser is open to definition based on too many variables to list here like are you happy to drive a Honda or is a Tesla truly what you need. In the end, there is room for everyone and every adviser can choose what is best for them at the time. DO NOT BELEIVE THE ASSUMPTIONS MADE IN THIS ARTICLE – they are not true!
If you do not like the choice you made, simply choose again as long as you did not sign a stupid deal out of greed or fear which leaves you exposed.
There was always huge demand for advisers that ran their own business and had a personal reputation to protect versus a faceless corporate practice. It is very sad to see this be ignored by the industry and ASIC.
It is quite a demeaning term the “one man band”… implies some kind of showman. I think some of the best advisers are the one man practices with significant staff and very efficient processes.
Economics certainly plays a part however the individual adviser practice has the same ability to charge as much as a corporate adviser – this is also a nonsense argument.
The real issue is continuity of advice for clients in the event of extended breaks, illness etc. The issue though would be the same in a corporate practice. If a corporate has the capacity though to absorb an MIA advisers clients you would ask why the adviser was there in the first place??? I’d suggest that most would be out recruiting and scrambling to service the clients of the MIA adviser. Remember it is the adviser that holds the advice agreement and is listed on the client account – not the practice.
The second argument about visiting 1 adviser v visiting 10 is BS…. 1 file v 10 files – same work I would have thought and if AMP is not auditing remotely (like most) then that just shows you how out of step they are.
I remember this debate pre FOFA, that small practices wouldn’t have the resources or clout to be able to compete/survive in the new environment, then look at what happened. Smaller, more nimble practices, can quickly adapt to changing market conditions, consumer sentiment, and legislative hurdles. We can also reduce costs (or increase fees) as required, bolt-on technology at a moment’s notice, and run a practice from a laptop while sipping on a gin and tonic. Small is beautiful.
It is becoming difficult to be a sole practitioner these days, especially after the ASIC levy of almost $2500.
As a single adviser practice… trust me I aint going out of business, just building support networks and growing!
Anyone who uses anything that AMP does as a yardstick is measuring the wrong stuff! This firm has NEVER known what it’s doing and it’s hard to believe it’s learned very much from any of its own experience, let alone bothered to take any lessons from others’. The trend to watch over the next decade is the emergence of the 2-3 person, self-licenced practices That’s the future of about 70-80% of the best of the advice industry, with the remainder doing institutional business for corporates and ultra-high net worth individuals..Most consumers want to deal with a principal who has a body of experience greater than theirs and preferrably, demonstrated ability over a minimum of 7-8 years – which they’ll perhaps gain at a big institutional advice firm like AMP before they join or set up their own regional or suburban practices. That’s been the direction of the true leaders of this industry for about a decade now and AMP might catch on one day. Meanwhile they’ll be a practiceground for young people on the way through to their own professional practices. Not the best training, but the best will learn what NOT to do there, while others will take longer to learn in their own practices.
Self licensing is the answer, However you may need to learn some new skills, or partner with someone who has them already. The big AFSL’s are merely looking for the cheapest slaves to promote their mantra and funds gathering. The client generally is attracted by the adviser, not the brand. Smaller AFSL’s like Lifespan etc are filling the void for those who don’t want to self license.
Lets turn the clock back 5 years and look at where we were and how many clients we helped.
The industry was thriving and supporting other industries.
Yes it wasn’t perfect and some paid for some service they didn’t get.
But that happens in many industries.
Lets look at the situation now.
Clients are being turned away and given no advice or care.
Fees are going through the roof.
Insurance premiums are increasing at ridiculous and unsustainable rates causing clients to close policies.
Business are going broke that would have survived, affecting many people.
Life Insurance companies are going broke, slowly.
How can this be a good thing?
Have General Insurance or Mortgage Brokers had much change….no.
Do they have similar business models…yes.
I just feel the big end of town have orchestrated this and it is a blight on everyone involved that the industry is on the brink of bankruptcy unless you are a big corporate.
Where has all the caring gone.