Speaking to ifa, Conaill Keniry, founder of What If Advice and owner of small dealer group Cobalt Advisers, explained that many advisers are unaware of the full extent of a dealer group’s control over their business.
“A dealer group controls whether you are or not on the register. A dealer group controls your revenue. A dealer group is the one that has to write the release letter for your clients,” he said.
“They can make that as easy for you or as hard for you as they like.”
According to Mr Keniry, leaving a dealer group can be a daunting experience, especially since the group wields the ability to hinder the process and potentially harm an adviser’s business.
“Whether there is or isn’t a contract in place, that doesn’t mean they can’t stall the process for three or four months,” he said. “I speak to three or four new advisers a week and I have heard some horror stories.”
Mr Keniry provided some examples of the difficulties experienced by financial advisers, citing instances where dealer groups have refused to release advisers, leaving them feeling as though they were being held hostage.
“I’ve seen dealer groups say, “You can’t buy that book of clients unless you do a joint venture with me.” And then, “well, you’re now in a joint venture so you can’t leave”, said Mr Keniry.
These, he admitted, are “pretty extreme cases”, but evidence of a power struggle is fairly common.
“The minor cases will be things like, ‘My dealer group put my fees up. But even though we have a contract in place that then my fees are X, I can’t really do anything about it because if I complain they are the ones that are in control of my destiny’.”
While acknowledging that dealer groups have “so much risk at stake”, and need to exert some control, Mr Keniry asserted that “they’re taking this one step too far”.
A solution, he believes, starts with reframing the relationship between financial advisers and dealer groups.
“I think the biggest mind shift that advisors need to make is your dealer group is a business partner. They’re ultimately a business partner you’re getting into this relationship with,” he said.
Ultimately, Mr Keniry noted that while there are certainly benefits to being part of a dealer group, such as access to resources and support, it’s important for advisers to understand their rights and the potential risks involved.
How to choose the right dealer group?
When it comes to choosing the best-suited dealer group, Mr Keniry suggested advisers need to consider several important factors through a system of due diligence and careful evaluation.
Mr Keniry suggested a short checklist of key considerations that advisers should keep in mind, such as reviewing corporate authorised representative (CAR) agreements, talking to other advisers who are either on or off the licensee, and considering how the dealer group could impact software and planning.
He advised advisers to dig deeper into the company by talking to decision makers rather than the business development managers and to properly evaluate the potential benefits and restrictions that each dealer group may bring to their business.
To hear more from Mr Keniry, tune into our podcast from 5pm Wednesday.
Interesting, that the doctors, lawyers and accountants and other true professionals do not have the same problem as they can exit or entry any entity or institution at will and even work from home. I wonder why advisers are tied to costly dealer groups? Costly for advisers and their clients?
37 years’ later, nothing changed. First, it was the Life Offices (tied agent), now, the Dealer Groups.
Dealer Groups promise the world, but deliver an Atlas. I question their relevance.
I am the major shareholder and CEO of a well governed boutique advice group. We have never held our ARs to ransom, and have always acted in their best interest. We do not take a percentage of revenue and make every effort to assist them in their business. Where an adviser has left, we let them leave on good terms because chances are they will run into one of these advice groups that pull these kinds of stunts. We have also fought with these types of groups and have several horror stories, including one where they refused to release them for over 12 months.
Don’t paint every licensee with the same brush, we are not all the same.
The fact that dealer groups are out there advocating for advisers, when they also hold their self interest above their advisers they are supposed to be helping is the key problem here. We must adhere to the additional restrictions imposed on us from a licensee, yet they take “education fees” from providers, limit APL’s to their own SMA’s and bend every rule that suits them.
The licensing arrangement is a floored system and even the self licensing costs are a disgrace. Another opportunity for Dealer Groups to put their hand out by white labelling their already overpriced offering.
One thing that Stuart Robert has right – is for Financial Planners to be recognised by professional body – the new FAA, or AIOFP, Or SMSF Association. Those groups to organise better cost effective & uniform PI. ASIC can then be released to only focus on the bad apples. Fp”S will be held to professional standard & no need for AFSL’s
The sad thing is the QAR didn’t even canvass this as a way of making advice more affordable.
Dealer groups should be held to account by ASIC/APRA/all the governing bodies advisers are put through. Advisers are required to “act in best interest of a client” but a dealer group can hold you hostage and allow you to use maybe 5 different insurers in the market, or 4 different platforms. Pretty hard to “act in best interest” when a dealer group controls what you can and can’t do and who you can and can’t do it with.
“Financial advisers are facing a power struggle with their dealer groups, with many advisers unaware of the extent of a dealer group’s control over their business, an adviser has said”
This adviser just worked this out?
We went to our own AFSL mid last year. Dealer Group charged 20% of revenue from day zero that we got released. We sent off the various forms and letters to the products day 1, of course it took about 6 weeks for everything to finally come over, costing us many many thousands. We had asked for them to consider 30 days before harvesting our revenue , this was declined. They also would not sign the permission form for us to convert our data until we got released, meaning we couldn’t book our xplan conversion for a month after being released, meaning no CRM. Glad to be in control of our own destiny. again
Wow! That’s a very poor experience.
I am not yet positioned to go self-licenced, maybe another 12-24 months but in the meantime I really dislike how much control my dealer group has over me. Cash flow is restricted rather than revenue come in as it comes in like most other businesses outside our industry and then all the other controls they have. It sometimes feels like I’m an employee while suffering the stress of running a business in this difficult industry. I do see a light down the tunnel but it’s not yet that close. While saying that the dealer group isn’t all bad but I’m not truly running my own business under this model.
When it comes to choice of Dealer Groups, Advisers are motivated by their hip pocket. Even though self-licensing costs less. Until the selection of a licensee is based on what’s good not only for their clients, but also for Australians and their peers, the Dealer Group model needs to stay. Being self-licensed myself I was sick of their “Cult” and brainwashing, but also the conflict of interest and self-interest of that model. I believe in personal accountability and not hiding behind the safety of a licensee. I don’t think Advisers in the majority are professional enough to be operating in a self-regulated environment as yet. You may be a professional, but you’ll never work in a professional environment and gain the benefits of self-regulation and self-determination. I became self-licensed as I want to be not only be a professional but work in a profession. Discounted software, subsidized business costs, reduced platform fees because you’re with Dealer Group X are all deeply ingrained into Advisers still, and it will take a decade for that thinking to be removed.
I am certainly aware of the control they try to exert, but I keep reminding them that I am self-employed and they are there because of individuals like me. I have a master’s degree in financial planning and over 40 years’ experience operating my own business. As Maxwell Smart would say, “I know too much.” The problem we have is the over compliance measures that are currently in place and they are continually watching our movements on line.
“A solution, he believes, starts with reframing the relationship between financial advisers and dealer groups.”
A solution I believe is to get rid of the whole need to be under a licensee/AFSL. The whole system serves very little purpose. There needs to be one central body who handles adviser registration, compliance expectations, templates for documents eg. FDS/FCF etc, discipline. Maybe the AFSL system is suitable for non-relevant providers under the proposals of the QAR, while those qualified advisers can be self registered. Surprised none of this was tackled in the QAR, which makes you wonder…
Totally agree with this. I had to take legal action against them before my dealer group released me to my own AFSL. It was only after I got a litigation lawyer involved that they realised I was ready to fight and then they backed off.
Wonder whether I should report this to ASIC?
1. The size and number of dealer groups is diminishing as a result of adviser exists from the industry.
2. Approximately 20% of advisory business have solvency problems, so further adviser exits are imminent.
3. Once the experience advisers revenues exceed 350k – 400k, they are probably better served being self licensed.
The dealer group system must go !
No disrespect to the author but I have been extremely passionate about this issue for several years. Although many dealerships do the right thing the concept of having dealer groups in the first place is flawed. This is the most crucial area needed for reform and lowering costs of providing advice. Dante (previous head of FPA) also called for this change. Relevant providers should be all regulated through a central body and meet their various obligations accordingly – why have an expensive middleman ?? its a no brainer. Licensee’s have a extremely poor track record and have been the root cause of most of the scandals we all remember today … yes there have been improvements since the confliction was addressed but they are still just an expensive extra layer we don’t need.
Great comment!
They are far worse than an expensive middle man. They add additional layers of red-tape beyond the letter of the law or the intent of legislation/regulations, which pushes up costs significantly. The contracts forced upon financial advisers are unfair, and in most cases breach the law. But good luck fighting them, as they can destroy your business at any time if they want to. They also make it as hard as possible to leave, trapping many good advisers in an environment where consumers are forced to pay higher costs for lower quality advice. We will never have a proper profession until they are removed. I don’t see engineers, lawyers, doctors, accountants or any other professional forced to operate under such an archaic regime. The sooner they are gone the better.
I found out the hard way. Some Licensees are good others are very manipulative.