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Days numbered for mid-tier licensees

The appointment of administrators to Australian Financial Services (AFS) Group last week marks the beginning of the end for mid-tier dealer groups, says an industry consultant.

Pinnacle Practice director Anne Fuchs, who operates a matchmaking service between planners and dealer groups, told ifa the middle tier of the industry has always been reliant on conflicted remuneration for funding.

With the implementation of the Future of Financial Advice (FOFA) reforms in the middle of the year, it is hard to see how mid-tier dealer groups will be able to operate going forward, she said.

“How do they avoid AFS’s fate?” she asked.

The scale benefits of the big institutions means their dealer groups can charge “next to nothing” in dealer fees for full service, said Fuchs.

“There’s no way an independently-owned dealer group can operate that way,” she said. “So the pool of who they can recruit shrinks.”

Of the relatively few mid-tier dealer groups that remain, very few are actively recruiting, said Fuchs.
But the boutique end of the market is “blossoming”, she said.

“Those boutique dealer groups whose value proposition is built around independence and a ‘co-op’ culture seem to be doing really well,” said Fuchs.

The future of the industry is likely to consist of specialist boutique providers at one end and institutionally backed “transactional” business at the other, she said.

Over the next two years the number of people operating in traditional dealer groups will shrink, said Fuchs.

“The holistic advice that we’ve known traditionally, that’s been funded by not necessarily very transparent adviser service fees and commissions, is ending,” she said.

“The growth opportunity in advice is the scaled advice: bite-sized pieces of advice for consumers at a low cost,” she added.