In this article (Updated 22-Feb-2018 to show rankings from 1 July 2015 for simplicity), we explore how the need to have scale but be independent is playing out in the financial planning industry by analysing ASIC’s Financial Advisers Dataset (1 July 2017). The six largest financial planning groups in Australia need no introduction but read further, and you will find out who the fast-growing financial planning groups are and what is propelling them up the ranks. Alignment of advisers is set to be a topic of discussion with ASIC’s clarifying its position on use of Non-Aligned label in June 2017. In this article, we show analysis that supports the view that there is a general movement of advisers to non-aligned financial planning groups.
Introduction (Managing Wealth)
The average net worth of Australian households in 2015 to 16 is $929k, up 11% from $835k in 2014to 151. The main contributor to the increase is from growth in property assets. However, the average superannuation balance was $188k, growing by 14% from 2014to15. The average wealth growth is underpinned by strong property price growth and compulsory superannuation. Although property price growth may be more subdued in the coming years, superannuation balances will continue to grow with Superannuation Guarantee contributions and investment returns. The financial services industry is in a good position to help Australians manage their accumulated wealth.
Although, Australians on average may be wealthy, as retirement approaches for some, they must face the uncomfortable truth of not having enough savings for a lifestyle that meets their expectations. Financial advisers play a significant role in helping Australians plan for their retirement. Crucially, financial advisers design financial plans that help bridge the gap between expectations and what is possible given the financial circumstances.
Despite the potential value financial advisers can add in growing and protecting wealth, a 2014 ANZ study2 found that 61% of surveyed Australians (or “61% surveyed”) have never consulted a financial adviser/planner. In the same study, those that have chosen a financial adviser (in the last 12 months to study date) were asked what the main reason (multiple responses allowed) was for choosing their financial adviser. Recommendation/reputation was the primary reason (51%), while perceived competence (25%) and service (23%) were the next two main reasons cited. Among other reasons provided, what is interesting to note is only 8% provided fees as a reason for choosing the financial adviser, bearing in mind this relates to a group that has chosen a financial adviser in the last 12 months. It does not suggest that those who have not engaged a financial a planner does not find fees a significant deterrent. For those that have chosen a financial adviser in the last 12 months, 59% of those surveyed knew that financial advisers might have a conflict of interest.
In FPA’s submission3 to the Productivity Commission’s (2017) inquiry into competition in the Australian financial system, FPA noted that regulatory burden is creating significant pressure on financial businesses that requires scale to overcome.
From the perspective financial planning business, scale matters because it helps deliver network effects benefits. Clients also seem to be highly aware of the potential conflict of interest when receiving advice. This awareness is not lost on financial planning businesses that seek to differentiate themselves from the market by highlighting their lack of alignment to larger financial institutions. On 27 June 2017, ASIC clarified that financial advisers could only use terms such as non-aligned and similar labels conveying independence if they can satisfy s923A of the Corporations Act4. We believe this clarification by ASIC places more emphasis on the value of being independent.
Analysis
The scale and alignment aspects of a financial planning business will be explored in this article by analysing ASIC’s financial adviser dataset at 1 July 2017. We removed any obvious inconsistencies or errors from the ASIC data to provide clarity.
Bigger is Better
In a financial planning business, whether from an individual or group perspective, scale is an important success driver as having scale allows the cost of regulatory burden to be spread out over larger number of clients. Other benefits may come from having access to a reputable brand, business processes, and technology. The measure of scale being used in this analysis is the number of advisers.
The chart below shows the quarterly ranking (by number advisers) of the Top 25 financial planning groups (by licence holder) from 1 July 2015 to 1 July 2017.
The chart is interactive, and by floating your mouse pointer over it you can highlight the group and ranking at each quarter.
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Many of the top 25 planning groups are owned by the AMP and the big four banks. AMP and the big four banks have been consistently in control of most of the top 10 financial planning groups since 2015. The changes in ranking outside of top 10 partly reflects the changing financial planning regulatory landscape and general competitiveness of the industry.
Licence Controller Analysis
To understand the dominance of the top financial planning group owners, the ranking has been recalculated by grouping the number of advisers by licence controllers. The chart below shows the top 20 licence controllers and the planning groups they control. The size of boxes in bold outlines reflects the number advisers under the license controllers.
The chart gives a visual impression of the dominance of the top licence controllers, highlighting IOOF as the sixth largest licence controller. IOOF is set to become the second largest group when they agreed to purchase ANZ’s non-aligned planning groups in late 2017. For a group that is outside of the top six to overtake IOOF in ranking, organic growth will not do, and only a merger between two or more suitably large groups will work
To use an example and numbers for clarity (refer to Table below as @ 1 July 2017), even if Synchronised Business Services (432 advisers) and Terry McMaster (374 Dover Financial Advisers) were to merge it will not be enough to surpass IOOF Holdings (985 advisers).
Fast Growing Financial Planning Groups (Licence holder)
On the topic of mergers, 2017 has seen other acquisitions apart from the mega-deal announced by ANZ and IOOF. On 26 June 2017, Easton Investments (controller of Merit Wealth AFSL) agreed to acquire GPS Wealth5. The merger of the business is expected to deliver significant synergies and make it one of the largest accounting aligned financial planning groups.
The chart below highlights the groups that have improved their ranking significantly, including GPS Wealth and Merit Wealth. The significant growth is explained by a licensing change that occurred from 1 July 2016 which meant that accountants must be covered by an AFS licence to provide advice on Self Managed Super Funds (SMSF)6. A limited AFS licence was created by ASIC that allows a licensee to provide a limited range of advice related to SMSF. Merit Wealth and GPS Wealth both provided limited AFS licence which authorised a large number of accountants seeking to continue to provide SMSF advice under the new SMSF advice licensing requirement. SMSF Advisers Network (controlled by National Tax & Accountants’ Association) also experienced significant growth as result of the change in licensing regime.
Australian Unity’s appearance in the Top 25 can also be partly attributable to the change in licensing regime but based on Australian Unity’s press releases they appear to be actively recruiting advisers prior to July 2016.
Interprac is another financial planning and accountants group that has grown significantly. Interprac’s recent growth is also partly attributable to the introduction SMSF limited AFS licensing regime. Interprac was acquired by acquired by Sequoia Financial Group who was attracted to Interprac’s non-aligned advice framework.
Sychronised Business Services has grown strongly in the past five years while Terry McMaster’s growth is even more impressive moving from rank 48 (not shown) at 1 July 2015 to rank 20 at 1 July 2017.
The top 6 licence controller groups have historically had a tight grip on its’ position. The analysis above highlights three future developments that might challenge the top 6 groups position:
- The top 6 group makes up only 36% of the total number of advisers as of 1 July 2017. Over time, higher organic growth outside of the top 6 coupled with inorganic growth will challenge the top 6’s dominance.
- The new licensing regime for accountants may trigger further convergence between accounting and planning practices. The two professions are highly complementary and working more closely together enhances their capability to act in the best interest of their clients.
- The fast-growing firms identified are not owned by a product issuer except for Australian Unity. The general movement towards being non-aligned appears to be continuing.
Growth of Non-Aligned Groups
Alignment is a choice that a financial adviser needs to make. Being non-aligned allows financial advisers to distinguish themselves from aligned financial advisers giving an added layer of trust that their recommendations are in the best interest of their clients. Please note the use of non-aligned and similar labels conveying independence has been restricted by ASIC in an announcement that clarified their position on 27 June 2017.
For the purpose of this article, we have classified financial advisers operating under a large AFSL controller (Licensees and licence controllers in Top 50 in five years to 1 July 2017) that issue financial products as being “linked to product provider.” Using this categorising rule will indicate the level of alignment in the industry in the five years to 1 July 2017.
Please note if we were to try and estimate the percentage that is non-aligned (not possible using ASIC dataset) by applying s923A rules the percentage will be significantly lower than the percentage that is linked to a large product provider estimated here. For example, advisers that receive a commission from a product provider and do not rebate the commission to the client in full cannot refer to themselves as non-aligned. Furthermore, a restrictive Approved Product List (APL) will also mean that an adviser cannot call themselves non-aligned.
We have classified the following licence controllers as linked to a large product provider. Please note we have included timeshare scheme promoters as aligned rather than exclude it for completeness.
The chart below (float over chart to see number of advisers at each quarter) shows the number of advisers split between those that are aligned to product providers (list classified as such shown above) and those that are not. From 1 July 2015, there has been a noticeable increase in the proportion of not-aligned to product provider advisers, increasing from 45% to 54%. Part of this increase is driven by accountants being brought into the limited SMSF advice licensing regime in the lead up to 1 July 2016 and after. The increase in the proportion of not-aligned to product provider advisers supports the general view in the industry that there has been movement of advisers from aligned to non-aligned groups. Will the recent increase in the number of advisers not-aligned to product providers continue past 1 July 2017?
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The largest financial planning groups in Australia are currently dominated by AMP, big four banks, and IOOF. The dominance of large institutions may finally be facing some challenges by co-ordinated efforts from smaller players, accelerated by regulatory changes that ultimately aims to serve the best interest of Australians seeking financial advice.
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John Low is Principal of Skilful Analytics, a data analytics consultancy that helps organisations unlock data-driven insights that enhances decision making. Prior to founding Skilful Analytics, John practiced for 18 years as an Actuary applying his analytical skills to life insurance product manufacturing and financial management of life insurance companies. In his free time, John enjoys spending time outdoors with his family as well as running and basketball.
Reference
- ABS. Main Features – Household Income and Wealth Levels. 2017. http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by Subject/6523.0~2015-16~Main Features~Household Income and Wealth Levels~5. Accessed January 9, 2018.
- Nash J. ANZ SURVEY OF ADULT FINANCIAL LITERACY IN AUSTRALIA. 2015. http://www.financialliteracy.gov.au/media/558752/research-anz-adultfinancialliteracysurvey2014-fullreport.pdf. Accessed January 9, 2018.
- FPA. Competition in the Australian financial system. 2017. https://fpa.com.au/wp-content/uploads/2017/09/2017_09_15_FPA-submission-to-PC-Inquiry-into-competition-in-the-Australian-financial-system-FINAL.pdf. Accessed January 8, 2018.
- ASIC. 17-206MR ASIC clarifies its position on the use of “independently owned” under s923A | ASIC – Australian Securities and Investments Commission. https://www.asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-206mr-asic-clarifies-its-position-on-the-use-of-independently-owned-under-s923a/. Published 2017. Accessed January 10, 2018.
- Easton. Easton Investments Annual Report 2017. R153. 2017:1-28. http://docs.wixstatic.com/ugd/491cd1_a4ae585b9ab941f8b25a75012ebb6273.pdf. Accessed January 10, 2018.
- ASIC. AFS licensing requirements for accountants who provide SMSF services | ASIC – Australian Securities and Investments Commission. http://asic.gov.au/for-finance-professionals/afs-licensees/applying-for-and-managing-an-afs-licence/limited-financial-services/afs-licensing-requirements-for-accountants-who-provide-smsf-services/. Published 2017. Accessed January 10, 2018.
