Commentators have been predicting the imminent demise of the single practitioner financial planning business ever since I began working in this industry over a decade ago.
A number of institutional licensees are focusing increasingly on servicing the needs of multi-adviser businesses, rather than single practitioners. Research by Adviser Ratings in 2019 found that major institutions had increased licensee pricing substantially for single authorised representative businesses with less than $500,000 annual revenue, and were rapidly extracting themselves from the $200,000-$500,000 annual revenue segment.
Some in the industry have advanced the proposition that single practitioner businesses will increasingly not be scalable enough to survive. We don’t agree. We believe that while it’s becoming more difficult, there’s still life in the single practitioner business model, and plenty of scope and opportunity for them to flourish.
It’s true that increases in regulatory and compliance costs, including personal indemnity insurance, are putting pressure on the revenues and margins of many advice businesses. However, there are countervailing developments which, if deployed effectively, can take costs out on the other side of the ledger.
Single practitioner advice businesses will generally not have the scale to fund the internal infrastructure found within multi-practice businesses. There has however been significant growth over the past 10 years in advice businesses’ ability to outsource non-core activities such as paraplanning, portfolio management, automated record-keeping, client relationship management, as well as access to aggregated resources and services such as research, personal indemnity insurance, technical expertise, and much more, often through a dealer group. If implemented effectively, these solutions can introduce substantial time, cost and efficiency savings, as the economies of scale achieved by external technology and other service providers can be transferred into the advice practice’s cost base.
We also don’t subscribe to the view held and articulated elsewhere that single practitioner advice businesses pose a greater compliance risk to consumers than their multi-adviser/multi-practice counterparts. That’s not been our experience for the advice businesses we work with, and the financial services royal commission showed that it has not been the experience of Australian consumers, either. Most of the misconduct highlighted in the advice sector during the royal commission took place within large advice businesses, including poor behaviour at the executive and management level in combination with an inherent sales culture.
We should also remember that the financial planning profession is not unique in combining both single practitioners and larger firms with multiple practitioners, and that this is the case in other professions including the legal, accounting, and medical professions.
In our view, there’s no “one-size-fits-all” business model for the provision of financial advice, and similarly, no “one-size-fits-all” model for providing licensee services. We don’t believe that the dealer fee model of charging the same fee for each adviser regardless of the size of the client base they look after is appropriate; for example, we do not believe it’s appropriate to charge a $1 million annual turnover advice business with two advisers the same dealer fee as a $500,000 annual turnover business with two advisers. A business with significantly higher revenue is likely to require more service and probably more importantly, more supervision and monitoring, and therefore in our view justifies a higher dealer fee. There are, of course, other factors in the mix, but a “one-size-fits-all” approach doesn’t enable a licensee to tailor its services and oversight to the circumstances and needs of the individual advice business, which is the way we believe that a licensee/authorised representative arrangement should operate.
The advice industry has room for a variety of business models and structures, configured to meet the differing needs and desires for control of advice professionals and their clients.
Advice is still a people business, and the strength and longevity of client relationships still support the single adviser firm model. Ultimately, we believe that if a single practitioner advice business has a clear and well-articulated client value proposition, is run by an advice professional who understands their business, compliance, and client obligations, and is assisted by a licensee committed to tailoring and packaging its services to meet these advice businesses’ specific needs, single practitioner advice businesses can and will continue to flourish.
Eugene Ardino, chief executive, Lifespan Financial Planning
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