Opportunities and challenges in independent exodus

Opportunities and challenges in independent exodus

The year ahead will test the mettle of non-aligned dealer groups looking to cash in on the migration of advisers away from the institutional sector.

There is no doubt about the rise of the “ïndependents”, both in the minds of the consumer and the advisory community.

The bank scandals and failures profiled by this publication and the mainstream media, and taken up by politicians of all stripes, have revealed the cultural and structural flaws for all to see.

We are seeing the greatest migration of advisers to non-aligned dealers or their own licences in our history. This is due to brand damage association, lack of investment, inferior and non-competitive platforms and products, managerial or organisational cultural misalignment and, primarily, client fiduciary care.

The greatest opportunity for non-aligned dealers is capturing this talent and FUM movement, but this also represents the greatest threat.

Small and mid-sized dealer groups are all reporting the most significant onboarding of new advisers in 2016 and expect this to be even greater in 2017. The challenge is having the available resources to onboard new advisers while still delivering the expected historical services to the existing practices.

Practice recruitment is a time- and resource-consuming activity for both migrating practices and dealers. 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 enforcement activity. However, compliance services in-house or outsourced are limited as the banks absorb all available compliance professionals available. One bank anecdotally has 400 compliance personnel working within its distribution channels. There has been the consequent cost increase of compliance talent in response to the supply-demand imbalance.

Dealer growth also requires capital in many instances; with greater adviser numbers comes greater infrastructure and internal headcount, but profit growth only comes after a sustained period of time. It is for this reason we will see more mergers of mid-sized dealers in 2017.

With increased compliance requirements has come increased costs. This is especially prevalent in the area of technology and financial planning software upgrades and maintenance given the requirement to have any advice provided recorded and retained, especially if any practice moves as the responsibility to prove quality of advice remains.

The other area of growth and opportunity for dealers is in the area of “ïn-house” asset management. With diminishing returns due to July 2013 conflicted revenue and the cessation of platform revenue sharing, dealers must explore other revenue opportunities. This involves the selection of best of breed new age platforms, asset managers, fund managers and/or use of index or ETF’s.

The use of branded robo-advice, especially coupled with in-house asset management, is also a key imperative for growth.

The exploration of third party referrals is another determinate for growth as this is often associated with overall culture and value proposition.

While we are seeing the uplift of “independence” what is lacking is any real consumer or industry brand development, which has been the domain of the institutions given the sustained investment required.

The other significant challenge is cultural authenticity and maintenance when growth rates are more than 30/40 and, in some cases, 100 per cent per annum. The key distinguishing feature of any dealer is group culture and it is also what attracts and retains FUM and revenue.

Dealer groups have experienced diminishing profit margins and hyper competition in a time when they have had significant back office investment and a requirement to keep tight expense management.

It is for these reasons we will see more mergers of mid-sized dealers in 2017 as capital and back office efficiency is sought.

2017 will be the year that managerial and leadership skills will be tested and it will prove to be the difference between success, mediocrity and failure.


Steve Prendeville, Forte Asset Solutions

Opportunities and challenges in independent exodus
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