That is the view of Steve Prendeville of Forte Asset Solutions and Forte Dealer Solutions, who has identified talent and FUM recruitment risks as a key concern in his 14th annual Market Commentary.
Published exclusively by ifa, Mr Prendeville’s commentary outlines specific risks that mid-tier and boutique licensees need to consider as they build their adviser ranks.
“Small and medium-sized dealer groups all reported the most significant onboarding of new advisers in 2016 and expect this to be even greater in 2017,” Mr Prendeville wrote.
“The challenge is having the available resources to introduce new advisers whilst still delivering the expected historical services to existing practices.
“Practice recruitment is both a time and resources consuming activity for migrating practices and dealer groups alike. Dealers are hyper sensitive to compliance standards as none want to introduce a Trojan horse into their midst, given the costs and damage created by any enforceable understanding or ASIC finding.”
Mr Pendeville said the ability is fend off this “Trojan horse” threat is hampered by the banks’ hoarding of legal and compliance dealer group expertise.
“In-house or outsourced compliance services are also limited as the banks absorb all available compliance professionals available,” he wrote.
“One bank anecdotally has 400 compliance personnel working within its distribution channels. There has consequently been a cost increase for compliance talent in response to the current supply and demand imbalance.”
Mr Prendeville tipped increased merger and acquisition activity between non-bank dealer groups, off the back of diminishing margins and increasing compliance.
To access the full market commentary click here.
All in all a good read with some very useful market info. As a small licensee with an open APL, software agnosticism and no badged platform Hunter Green is looking to grow adviser numbers, but I acknowledge the “trojan horse” problem, which we attempt to deal with by growing slowly through word of mouth. With compliance being our sole focus we are looking at how technology, and flexible working arrangements, can keep our “compliance staff” costs under control – I’d optimistic that just as advisers are looking for a new way of doing business, compliance staff at large institutions may also tire of the daily grind and find us an attractive alternative.
What is the primary purpose of most financial planning compliance? To support the sale of inhouse product. Institutions need an advice system that can technically comply with the letter of the law, while clearly breaching the spirit of it. That is not easy to do. It is why compliance has become so ridiculously complex, and why institutions spend so much on it.
Take away the need to sell inhouse product, and compliance becomes a lot simpler and cheaper.
well put, and then jam your compliance team with people who have no qualifications or any brains. zero zilch and you get the modern financial planning industry. an abominable disaster. I really hope FASEA make it mandatory for everyone involved in the FP industry to take the exam (responsible managers, bdms, underwriters, compliance people, external lawyers, platform providers, product providers, anyone and everyone who wants to participate in the industry must do the exam and have a relevant post graduate degree.
and I really hope that they model that exam after the CFA that is over three gruelling levels at 6 hours each (18 hours in total requiring at least 900 hours of total study). that should wipe almost everyone out so only the most capable who actually understand anything about finance can work in the industry. and then leave those who actually care about their clients and understand their fiduciary duty can be left alone to do what they are good at doing.
for god sake
This works the other way around too. There are younger well-qualified advisers, with some experience under their belt, who leave what they perceive to be high-risk dealer groups. By that I mean, dumb tick-a-box compliance, and very poor management. These advisers have higher education standards and will not just sit there and accept wearing the risk from decisions made by others, they will vote with their feet.
The pressure is now on dealer groups to have strong management that is about adapting to change, meeting client best interests, and not just feeding on the ongoing annuity and building AR numbers for the sake of it.
Conversely, that means there are dealer groups who superficially will be left with ‘high-performing’ ARs, but who are in fact actually less equipped to deal with the upcoming changes to educational standards and technology. Watch as they ‘hit a wall’ in the next 5 years.
This sorting is happening, even if it is under the radar, and is likely trial-and-error to some degree.
Steve sounds a bit like an institutional AFSL with dire warnings to departing ARs. Harsh ?
The labour cost of compliance is too high.
Enter regulatory technology. Technology is more robust, and can deliver on the front end as opposed to auditing the back end.
Nice. New material for the Lexicon. “Trojan Horse” being a new Adviser to an AFSL who appears to be reputable (a gift) but instead has an impaired compliance history and/or who may bring his new AFSL into peril or disrepute in the future.
I disagree entirely, the author talks about the risks of small dealer groups picking up poor advisers. Small dealer groups are part of the community and they know who is high risk and who are low risks advisers. How is a large dealer group based in Sydney going to know a good adviser from a hi risk adviser in Townsville, they are ultimately only interested in FUM. All the good advisers are leaving these large dealer groups and the high risk advisers have to remain as a numbers in these much larger institutions. Larger Bank licensee may have larger compliance numbers but that means nothing. In 2009 I was with a large bank aligned dealer group. They had three pages of compliance staff. I had a query around their compliance process so over the space of three days I rang all the names on that list and not one answered the phone. Three weeks later I received a call back, which by then was too late. . Having my own license I now have far better access to compliance and I have better compliance support.
Couldn’t agree with you more. I self licensed just this year, but had an eye on it for 3 years prior. Best move we’ve made, and I geninuely feel if you are an elite adviser it’s the best way to go, steer your own ship and don’t risk the brand damage one rogue can do to your business!
In time we may bring on 2-3 more businesses but I’ll make them all RM’s of the AFSL and it would be purely for economies of scale and resourcing for the group than for me to profit from them.