Sequoia Financial Group managing director Garry Crole told ifa that non-aligned licensees were struggling to match the terms being offered by IOOF to MLC advisers following the wealth giant’s purchase of the NAB-owned advice group, despite many practitioners not being keen to join another vertically aligned institution.
“We and other groups we got inundated with advisers when the announcement was first made saying they wanted to get out of institutionally owned [models], and as we talked to them about terms they were interested, but as time went on IOOF realised there was going to be massive leakage,” Mr Crole said.
“They’ve now come in with prices that are not commercial, and the only reason they can do that is because they’re subsidising it.
“The comments from advisers are that whilst they want to take the moral ground and recognise the need to not have the conflict, their end client doesn’t really care and they want their adviser to charge them as low as they possibly can, so if they can reduce their cost to the end client it makes sense.”
Assuming all advisers from MLC transition to IOOF, the acquisition would see IOOF become the largest advice provider in Australia by adviser numbers, previous ifa reporting has noted.
Mr Crole said the recent news of HUB24’s equity stake in listed advice group Easton Investments also showed that vertical integration would persist in the industry going forward, particularly as the costs of doing business for advisers continued to increase and they sought out groups able to offer lower fees.
“For those that have been in the IFA space for a long time, we have had this argument forever and whilst we talk about the moral grounds and the value and those sort of things, the reality is price rather than value sometimes wins,” he said.
“Adviser professional indemnity costs are going through the roof, there are ASIC fees that licensees are passing onto the adviser, and that all adds up.”
Mr Crole said Sequioa, which had significantly increased its adviser footprint through the acquisition of both Yellow Brick Road and Phillip Capital’s advice arms during the 2020 financial year, had further ambitious expansion plans in the years ahead.
“We hope to grow to about 1,000 advisers and we’re currently at around 400, so over the next three years we want to more than double in size,” he said.
“What we want to do is make the adviser the core of our business and have satellite offerings around the side, not around product but services.
“We’re trying to think about the things an adviser needs to do to improve their business and where do they pay money to help them deliver a better service, whether it’s quality SMSF administration, research, clearing services, the list is endless. If we can provide all those because of our scale, either through a JV or doing it ourselves, that is our goal.”
I wonder if the entire licensee model is broken. Licensees own the clients and lookback-spooked licensees now engage in predatory compliance, removing clients for the strangest reasons without consulting the advisers and I am talking about some of the previously best licensees.
I can’t see an adviser who cares about their clients and who wants to keep the value of their business intact stay with even an up to now decent licensee. It is getting dangerous.
It is just crazy that two parties are jointly and severally fully responsible for the advice, with the licensee having all the power over the adviser, often reinforced by contracts that are very one-sided.
Wonder no longer. It is broken. Has been from the start. The AFSL based system for financial advisers was designed to enable product companies to control an adviser distribution channel. Hayne had a golden opportunity to get rid of it, but he was either asleep or too busy preening for the cameras to bother.
Advisers should have an individual registration model like doctors, lawyers, & accountants. Let’s hope the new SDB will take on this role. AFSLs should only be required for product providers.
Thank God (Hayne) that Grandfathered commissions have been or will be turned off in the near future! Make the Adviser and AFLS look the client in the face when they charge their fees. If the client doesn’t see value, they will move on pretty quickly. Now let the minimum education standards come in so get rid of the ‘two weeks” trained (that’s all you needed to be an IOOF financial adviser in the good ole days) adviser incentivised by product sales. A message for IOOF….the game of product subsidisation is over…..get with the program! A message for institutionally owned adviser’s….read the tea leaves; read the writing on the wall; go and speak to some mature non-aligned advisers / practices…..otherwise commercial terms will be feed to you! Who do think is paying for the fat bloke, who never invoices a client, to sit in the corner office hiding behind the pot plant! The AR’s! Well he’s the first bloke that’s got to go when you run your own business!
Aren’t you licensed through AMP?
No……Lionsgate Financial Group! I’ve been an AR to Independent Licensee for 20 years! I began my career via institutionally owned licensee’s, including Westpac, Deutsche, AMP and Mercantile Mutual. Enough was enough when sales targets was the all consuming objective!
Most of MLC planners are so institutionalised, if they can save on fees that is all they want. Whether IOOF are right fit does not matter. Therefore whilst many existing IOOF licensee advisers are leaving then this will be offset with MLC planners joining. Subsidised by products and other advisers still in their licensees as well.
It is very easy to say this as Anonymous. The Planners that I know are incredibly professional and I am proud to stand alongside them. I think you must hang with the wrong crowd if you truly believe what you have said. Incredibly disrespectful.
With respect, many of MLC planners I spoke to are all asking ‘what deal can you provide’ because IOOF are discounting their fees. Apologises if it is disrespectful but many MLC planners have provided this feedback. In fact, most of them have stated we are waiting for IOOF to come back with their terms. It seems to me it is all about the fees ‘in the main’.
Are Interprac really talking about subsidising??? Glass houses!!!!
A little birdie is out there telling others that as it stands many advisers are looking elsewhere. How true this is for IOOF only time will tell.
At least one mid size dealer group is prepared to tell it how it is. Shame as an industry there is a need to criticize those who have tried to be at the forefront of the non aligned space.
Looks like the spin wheels are well in motion. Look forward to the real stories coming out about all this once the dust has settled.
Sour grapes?
As an adviser whose been with MLC and looked at the IOOF offer, I wouldn’t term it as cheap.
The licensee fees are continuing at their current rate for two years (which had a 50% discount factored in due to Covid)- but the adviser now has to pay for software that was previously included. Our software bill would be 54k (15 licenses) on top of the AFSL fees. So, no it’s not cheap. There’s other cheaper options out there. However the pitch from IOOF has been ‘quite’ good, plus they are seeking to make the transition as seemless as possible.
In the end it’s up to the AFSL’s to present value for what they provide. Many struggled with this.
Counterparty risk has increased significantly in our profession and to decide to take it on (or continue with it) there needs to be value. Price is only an issue in the absence of value. This article suggests Sequioa struggled to illustrate value.
I recall a few weeks ago an article in ifa titled Top MLC adviser jumps ship or something like that. I suspect this person is now not jumping because the deal at IOOF is better and this group is unhappy because the promised advisers who would all follow are now not coming so this CEO looks like a fool
Interesting. Thank you.
Absolutely far from cheap. Once you add in all the costs associated that they don’t talk about in articles like this.
The advice industry is dead. Get out while you can. Compliance has killed it. You can’t give advice in any numbers and be compliant, it is not possible unless you are charging a fortune and clients won’t pay it. It over.
Its not dead its just different now, its a lot harder that what it was, however there are still may successful planners out there. So if you can adapt you are ok, but if not, better you got out when you did. Enjoy retirement
Bachelor, it is dead unless you focus on the high end market. Your approach is basically saying asset and income equality isn’t an issue because Bill Gate’s income went up by the same amount as Warren Buffett’s.
Show me how an “average” person can afford financial advice and the “average” adviser can deliver it profitably and I’ll admit to being wrong.
The “successful” planners are sitting on large books of business built up during the “good old days”. They will go the same way as the manufacturers of typewriters eventually, it will just take them longer than the new entrants.
You are correct – no adviser would tell their kids to become advisers. Period.
If by ‘uncommercial’ you mean leveraging your balance sheet to subsidise your advice channels, then yes fine. The Banking RC stopped short of recommending that an insto cannot own product & advice, feeling that BID was sufficient. Unfortunately the business model of the licensee of the large stand-alone licensee trying to play the scale game is in trouble. This is why Easton were so keen to do a deal with HUB. You will find Centrepoint and others will be out looking for significant players to anchor their fortunes to. Otherwise, I’m afraid it’s a race to the bottom on price. Nobody cares about your independence if you run out of money.
There is no “scale game” in pure advice. Once a licensee goes above about 10 advisers there are actually diseconomies of scale. It is just too difficult to monitor and standardise across lots of different advisers without becoming so bureaucratic and restrictive it hampers the productivity and increases the costs of every one of those advisers.
The only reason large licensees exist is to make money from inhouse products sold via their advisers. That is why large licensees are fighting so hard against any moves to change the licensing system to individual adviser registration.
The only way to beat Discounted fees is to make a compelling offering that demonstrates your culture, processes and governance oversight Is way above the norm
If you can demonstrate to your advisers that they have the above and play an active role in shaping the future of their practices and the overall organisation then money doesn’t come into this
I would humbly suggest that you look at your Client value proposition again to practices and the wider industry and formulate new processes that create a competitive advantage and compliment the wishes, needs and innovative requirements of existing advisers and your target market
Discounted fees and subsidised offerings are not always the drivers for practices that seek to have their own freedom to operate the way that they wish, free from vertical integration and all the constraints that come with this.
These advisers are selling Australians and their colleges down the drain. Bottom of the barrel these advisers are. This article very much highlights why FASEA is required and exams and higher education standards. It’s to get rid of the lowest of the low. We don’t need these dregs in the industry any longer. Take you pieces of silver and leave.
Yep, thanks to Hayne vertical integration is alive and well. The RC was a stunning success in creating salacious media content and boosting the profile of its strutting lawyers. It was an abysmal failure in terms of reforming the financial services industry to benefit consumers.
Yes, it is ironic. A bit like the patient has cancer from the corruption of vertical integration and receives extensive painful surgery and other treatments including a straightjacket but the cancer is specifically kept in place. Who does that?
When has a Royal Commission ever provided a benefit to consumers?
100% agree
How are the terms uncommerical and what have you based this on?
One can only guess and here’s my best guess based on experience $500 bucks for Xplan, $50 for Research, $500 for a social media subscription. A survey of clients costing $3,000 for free.. on it goes.
He based it on the fact Sequoia offer was not compelling enough and is now having a sook to the trade media.
You will be charged reduced licensee fees to recommend in house products.
Exactly what FASEA and Royal Commission etc should have stopped, missed the mark completely. Unreal.
Hayne chose not to ban vertical integration because it was ‘dying anyways’. Apparently not.
Absolutely untrue. The reduced fees are for a fixed term only, after that full freight. At worst IOOF are using the inertia of having to change licensees to their advantage, because once they join the planners won’t leave.
We now know what the quid is. What will be the quo pro?
30 silver pieces today seem to be worth about 200 to 600 dollars.
You cannot service what you have and you want to double in size? Look after your existing advisers and staff first. Given you have around 400 advisers and only 4 compliance staff is going to lead to a visit from ASIC sooner than you think.
“The end client doesn’t really care”
More like: “I like keeping money for myself”?
As a client of a Nab aligned AFSL, I could not in good conscience make the move to IOOF. There has not been an honest explanation from anyone I’ve spoken to about how the 2 years at 50% of normal licencee cost can be funded without continued receipt of distribution allowance from in- house product. Their balance sheet most definitely doesn’t have the “legs” to make this concession. I am not prepared to step backwards on the path toward conflict free, transparent advice- In the AFSL world the only way fees could be effectively halved for 2 years is through product support. It’s time also to spare a thought for non advised platform clients who will have this blister on the cost of their investments, despite not partaking of the services!
Goodbye
Well said Cannon Fodder , unfortunately you are in the minority the 50% discount you mention for 2 years and free software is very attractive to the majority.
I guess you “need to be the change you want to see in the world”…….
Why are we hearing from a relatively insignificant group like Sequioa?
So they can’t compete? Hardly a surprise there.
Seems like a bit of a sook and whinge to me. If firms want the IFA route and see value in that, they’ll pay for it; if they wish to go the insto route with lower fees and more restrictions that’s their choice as well.
Don’t be a whiner, Porsche and Lexus don’t aim to price match Suzuki or Kia; improve your value and merit and you’ll remain valid.
you’re not comparing apples with apples there. A subsidized dealer group model is not the same thing
Never was about apples with apples and foolish to think so, more like apples with turkey pieces. You’re either a vegan or a meat eater. The two models are completely different but the vehicles are the same; apple & turkey are both food, but obv vastly different but both can sustain you; porsche and kia both automobiles but designed utterly diff for diff purposes, but both are vehicles that can carry you; Seq and IOOF both AFSL’s but entirely diff models, financials, restrictions or abilities etc, but definitely both vehicles for enabling a form of financial advice provision.
It is all about choice and your own direction. What part of any of that isn’t correct Tom?
What does the IOOF look like?