IFA Dealer Group Survey 2011, Top 100 IFA Cover Story Mon, 12 Dec 2011 By Krystine Lumanta and Samantha Hodge Page 1 of 6

Despite the seemingly endless storms raging over the financial advice sector in 2011 and battering a number of dealer groups, some firms have boosted their financial planner ranks in a tumultuous year.

Testing times for dealer groups The 2011 fiscal year was a testing 12 months, marked by higher than average volatility caused by European and United States debt crises, the Future of Financial Advice (FOFA) reforms, increased consolidation in the dealer group world and movement by high-profile heads. Despite the storms reshaping dealer group land, some firms recorded strong additions in planner numbers. Steve Helmich's AMP Financial Planning (AMPFP) added 120 financial planners in the 12 months to June 2011, making it Australia's largest dealer group for the second consecutive year, according to this year's IFA Dealer Group Survey.

Its total number is now 1524, compared to Professional Investment Services (PIS) in second place with 902 advisers, recording a massive plunge of 452 advisers over the year, half of which can be credited to the sale of a number of its international operations. A large drop in numbers was also felt by Count Financial, losing 206 advisers, possibly due to the Commonwealth Bank of Australia (CBA) buyout. Millennium3 Financial Services, Count Financial, Charter Financial Planning, Securitor Financial Group, Macquarie Private Wealth, Axa Financial Planning, Hillross Financial Services, ANZ Financial Planning and Bridges Financial Planning also experienced losses. The addition of financial planners to businesses occurred through completed mergers and acquisitions, such as Aon Corporation's merger with Hewitt Associates as well as the amalgamation between Snowball and Shadforth. The newly-formed Aon Hewitt Financial Advice business has 385 planners, while Snowball, which now operates under the name SFG Australia, has 160 planners to its name. The top 40 dealer groups now hold 100 advisers or more. It also appeared to be a tough year for retaining high-profile figures as Chris Ryan was appointed to the role of Perpetual chief executive, replacing David Deverall. During the year, DKN lost its chief executive, Phil Butterworth, along with three other DKN senior executives to BT Financial Group. Axa Asia Pacific boss Andrew Penn bowed out with a $17 million payout after its merger with AMP. ANZ managing director of wealth John Van Der Wielen resigned in August to pursue a position in the United Kingdom. Paul Barrett now heads up the advice division at ANZ after leaving his role at Colonial First State. Marianne Perkovic has assumed the role. Neil Younger left CBA in November for its rival ANZ Wealth, heading up practice-based financial planning. John McMurdo's sudden departure from Centric Wealth in July resulted in more than 10 executive and support staff also leaving. Phil Kearns, formally of Investec Bank, will be its new chief executive, starting 12 December. Finally, 1 December marked the date of Count Financial chief executive Andrew Gale's resignation. He was immediately replaced by CBA general manager of strategic development wealth management David Lane.

AMPFP value proposition rules Australia's largest dealer group for the 2011 financial year, according to IFA's Dealer Group Survey, is AMP Financial Planning (AMPFP), retaining the top spot over Professional Investment Services (PIS) for the second year. AMPFP added 120 financial planners in the year to June 2011, bringing its total number to 1524, and it now stands as the only business with over 1000 planners. The previous survey recorded PIS as having 1354, but it has since lost 452 planners. Snowball Group's merger with Shadforth Financial Group and its acquisition of Western Pacific Financial Group and Outlook Financial Solutions helped lift planner numbers to 160

from 85. But it was Aon Hewitt Financial Advice that amplified its number by 235 financial planners, more than any dealer group in this year's survey. Last fiscal year, Macquarie Private Wealth added 292, the biggest boost in the past three years. Aon Hewitt now has 385 planners, sliding up to rank 14, from a previous ranking of 30. The massive increase in adviser numbers goes beyond the closing of Aon Wealth Management and the transfer of advisers to Aon Hewitt Financial Advice as there has been an integration of advisers under the AIA Financial Services Australian financial services licence, growth through a joint venture with Smartline Personal Mortgage Advisers and the Aon Apprentice program for those new to the industry. A spokesperson says advisers were also attracted to Aon due to its shirt sponsorship of English Premier League football club Manchester United. Jumping from 47th spot last year to 36th, Bendigo Financial Planning almost doubled its planners through its acquisition of Melbourne independent boutique AIM Financial Services in mid-June. Sixty-three planners were integrated into the Bendigo business, taking its total to 128. AMP director of financial planning, advice and services Steve Helmich says the increase in its planner numbers is attributable to both the Horizons Financial Planning Academy and planners moving from licensees. "Ours is a combination of both. We're finding that we've got a very strong group of new advisers joining us from Horizons," Helmich says. "These tend to be career changers, typically aged from 35 to 50. That's where the great rump is coming from into Horizons - these people are seeing the financial planning profession as a career they want to get into." He says the academy's structured pathway to get into the profession is the reason why it's proved so popular. A solid selection process narrows down the substantial number of applicants to between 28 and 36 for each intake. "We do four to five intakes a year and when they finish, either they will move into an existing AMP Financial Planning or Hillross practice on a succession-style basis or move into one of our new financial planning centres to give them that progression [for their first professional year]," he says. At the same time, he says there's also interest in AMPFP's value proposition from planners who are with other licensees but remain selective. "We look at culture and their fit with our model. We've talked to a lot of people and so growth has come from that area as well," he says. The secret to retaining and attracting advisers to its business is having a strong value proposition and being prepared to listen to advisers, he says. "The starting point is that we are a financial planner-centric organisation and we look at how we can support planners around

self-development, training, succession planning and how we can equip them with financial planning tools, software and technical support," he says. "Overall, our rewards and recognition program works well with our planners. The total value proposition is no one thing. "We always listen and look at movements in the market. We're interested in opportunities around technology and we're looking at issues in the marketplace with technology that could be useful [as] tools with their clients." AMPFP also credits its strong adviser numbers to low turnover. "Financial planners out there are looking for good partners and we position ourselves as a partner for our planners," Helmich says. "We don't set out to be the largest [dealer group], but we want to make sure we grow our advice footprint so we can give more advice to more Australians."

Dealer group M&A activity presses on Steady merger and acquisition activity in the industry during the 12 months to June 30 led to a number of groups being swallowed up. Axa Asia Pacific Holdings (Axa APH), Count Financial, DKN Financial Group and Iris Financial Group were among a number of firms that were or are soon due to be absorbed into other businesses. In March, Axa APH was acquired by AMP after majority shareholders overwhelmingly approved the proposal. "A merged AMP Axa will bring together two of Australia's longest-standing businesses. It will deliver a new force in financial services by creating a company with the size and resources to be a strong competitor to the big four banks in wealth management," AMP chief executive Craig Dunn says. AMP and its Axa Australia and New Zealand businesses have close to 3000 financial planners, 6000 staff and nearly $130 billion in funds under management. In July, Hillross Financial Services acquired Iris Financial Group, boosting its funds under advice by $2.2 billion to $12.2 billion and taking on its 37 financial advisers. "Iris offers Hillross a strong professional and cultural fit with an aligned target market and advice process that will significantly grow the Hillross business," Hillross managing director Hugh Humphrey said at the time. "This represented one of the few opportunities to acquire a high-quality, non-institutionallyaligned licensee of reasonable scale to join our business." As part of the transaction, the 12 Iris practices joined the Hillross licensee, retaining their self-employed business model.

While some acquisitions have already gone ahead, some companies are still progressing with their strategies. For example, the Australian Competition and Consumer Commission (ACCC) has decided not to oppose Commonwealth Bank of Australia's (CBA) takeover of Count Financial, and the New South Wales Supreme Court approved the deal last month. "The ACCC is satisfied that there is unlikely to be a substantial lessening of competition in any relevant market as a result of this proposed acquisition," ACCC chairman Rod Sims said. Commonwealth Bank group executive of wealth management Grahame Petersen says an acquisition of Count by the bank's wealth management business represents an opportunity to invest in a well-run business that provides quality financial advice. The acquisition is expected to increase CBA's adviser numbers from around 1220 to more than 1850, which would rank it second by total number of advisers nationally. IOOF is also pressing ahead with the acquisition of DKN Financial Group, undeterred by the departure of DKN Financial Group's executive team to BT Financial Group. "While there have been some management changes post acquisition, we have been able to promote existing DKN and Lonsdale employees - a pleasing sign of the strength and depth of that business," IOOF managing director Christopher Kelaher says. Shadforth Financial Group and Snowball Financial Group have recently said the overall integration of their companies is progressing well following Snowball's offer to merge businesses earlier in the year. Meanwhile, Snowball has completed its acquisition of Melbourne-based wealth management firm Jeena, overseeing about $55 million in total funds under advice.

FUA gains ground despite volatility Despite market volatility in the industry, dealer groups were still able to increase their funds under advice (FUA) as their businesses emerged from the global financial crisis. Of the 65 dealer groups that registered a change in funds under advice (FUA) in the IFA Dealer Group Survey, 48 recorded an increase in the 12 months to 30 June 2011. RBS Morgans, Securitor Financial Group, AMP Financial Planning and Charter Financial Planning were among the strongest performers. AMP Financial Planning boosted its FUA by $1.988 billion to $39.464 billion; RBS Morgans' FUA jumped $3.5 billion to $34 billion; Charter Financial Planning recorded a $1.898 billion improvement to $10.973 billion; and Securitor Financial Group boosted its FUA by $2.993 billion to $9.774 billion. AMP director of financial planning, advice and services Steve Helmich says the increase in AMP's FUA was owing to market movements and its low turnover of customers, which helped keep stability in an uncertain market and consequently increased adviser numbers.

But it wasn't all plain sailing. AMP still faced key challenges when trying to gain new business, Helmich notes. "One of the issues is that there is not as much discretionary money in the system as there was three or four years ago. People just don't have those spare dollars to invest. That's a key part of it. People recognised things were a bit tighter and that flows though to people investing money," he told IFA. "The second point is consumer sentiment is not high and that can lead to people being a bit more discerning and rather than maybe taking the more long-term view of investment in equities, they might be investing in term deposits." He says AMP is vigilant in ensuring its planners have strong relationships with clients. "It is about strategy, structure and discipline," he says. "Our goal is to give great advice to as many Australians as we can. We intend to continue to grow our financial planning and advice footprint, and we're quite bullish about that." But not all dealer groups had the same positive experience - some were unable to be so resistant and suffered a decline in FUA in 2010/11. For example, Count Financial's FUA fell $2.94 billion to $9.86 billion during the period to 30 June 2011. The company cites the tough and challenging year in the capital markets causing lower investor confidence and fund flows as the causes of the decrease. "Businesses such as Count, which generate a significant portion of revenue growth from growth in funds under management or funds under advice, have a reliance on the state of capital markets, which also impacts industry fund flows. Equity markets have largely been trading sideways for the last 18 months and this has resulted in very subdued industry fund flows," Count Financial chief executive officer and managing director Andrew Gale said in the company's annual report in September. Retail and asset-based revenue growth was hampered by poor equity market performance, particularly in the second half of the year, resulting in an overall net income result of $43.2 million, down 5 per cent. Count said roughly half of this decline ($1 million) arose from new revenue sharing arrangements between Count and Countplus, which applied from November 2010 onwards. Approved platforms FUA ended the year at $6.2 billion, down marginally compared to June 2010 ($6.3 billion). "With regards to international asset classes, especially equities, which constitute roughly 16 per cent of our approved platform FUA, a major factor has been exchange rate movements," Gale said. "International asset investments are largely unhedged (over 90 per cent) so the A$ movement has had an adverse effect on FUA and revenues."

But Count is positive about the outlook of its FUA. NAB Financial Planning cited weaker investment confidence and negative investment returns due to a weaker equity market as factors in its fourth quarter 2011 results.

FOFA and the dealer group The Future of Financial Advice (FOFA) reforms were no doubt the hot topic of 2011, dominating every aspect of the industry: it took precedence in any discussion, ruled association agendas and swayed dealer group improvements. FOFA's influence shook up the notion of professionalism with its intention for financial services to get its act together. But while there was optimism that the draft legislation heralded the end of uncertainty, certain measures were deemed too vague and unclear. It appears more than half of dealer groups believe they are well-placed to meet FOFA requirements. According to IFA's Dealer Group Survey, 57 per cent of participants stated changes are being made to their business model in light of FOFA, with some stating they had already 'FOFAproofed' their dealer group ahead of the announcements. One respondent stated no changes would be made until all legislation has passed. Certain aspects of FOFA, however, will inherently affect planning businesses regardless of position and preparation. A resounding 70 per cent of dealer groups said the two-year opt-in measure would affect their business, and remains the most controversial initiative to date. Momentum CFP Philippa Elliott says opt-in is the biggest concern out of FOFA as it gives a negative impression to general consumers - that advisers need to be legislated to follow through with their job. "We've already been doing it for 10 years so the issue is more with the legislation of it and what that puts in the minds of clients. Can we not be trusted to do it?" Elliott says. "No other profession has been legislated to do that." Tupicoffs CFP Neil Kendall believes the opt-in measure is too prescriptive in nature. "I think the intentions might've been noble but the implementation is very tricky," Kendall says. "There are practical issues around opt-in that really haven't necessarily been thought through in terms of just basic practicalities. "For instance, it's not unusual for retired clients to be away overseas for eight, 12 weeks so there could be a few that are not contactable for a period of time. There are some real challenges around the constricting nature of opt-in and how you deal with that."

He says there needs to be some leeway as it is not unusual for advisers to experience a loss of contact when clients take extended travel. "At the point where your opt-in comes up, you may not be able to contact them for another three, four months, so planners will have to try to work around that legislation to make sure they meet the obligations," he says. He expects there will be a certain level of indifference towards opt-in. "This is just another thing that's been put upon and they're being told 'now you have to renew this every two years'. Human nature means there will have to be some sort of drop-off in clients just because of people's apathy," he says. The survey also found 72 per cent of respondents already offer scaled advice. Of those that do not offer scaled advice, almost 43 per cent said they plan to. Instreet managing director George Lucas says scaled advice comes from the need to make advice more affordable for the Australian public. "If advisers are going to stick with their current model, which is holistic advice, in the new environment it's just not going to work," Lucas says. "Scaled advice is going to give a lot of power to advisers in what they can charge and it's a re-engineering of their business from where they are today."

Leadership changes ease Mergers and acquisitions in the past year have led to a slowdown in leadership changes within the financial services industry. There has been a dramatic shift from the previous year when executive appointments, departures and internal promotions picked up pace following settling market conditions, to only a handful of notable dealer group chiefs who have moved within the industry in the past year. One major move was former DKN chief executive Phil Butterworth's decision to join BT Financial Group as managing director of a new business unit. Butterworth will be joined by fellow ex-DKN executives Mario Modica, Kon Costas and Andrew Rutter. The appointment of Butterworth, along with Modica, Costas and Rutter was part of a strategy by BT Financial Group (BTFG) to counteract regulatory change in the industry and involved the group's existing Magnitude business, the company said. "Advisers who want highly successful and sustainable businesses are now looking at who they should partner with for the next decade and beyond," BTFG general manager of advice Mark Spiers said.

"While we continue to attract planners into our salaried workforce to ensure our banking customers receive quality financial advice, we want to ensure we are best positioned to continue attracting those advisers into our aligned channels who want to partner with a highquality brand with sound strategies and an unquestionable focus on clients and leadership." Spiers said the business's mandate was to deliver business solutions to advice practices that helped them use the scale advantages available from working with BTFG. In early November, Commonwealth Financial Planning general manager Neil Younger jumped ship to join rival banking group ANZ as head of practice-based financial planning. Younger joined Commonwealth Financial Planning in September last year after replacing David MacKay, who left the group following a string of internal changes. Colonial First State general manager of advice Marianne Perkovic said she would assume the role of acting Commonwealth Financial Planning general manager in Younger's absence while it searched for his replacement. Prior to joining Commonwealth Bank of Australia, Younger held the position of head of dealer groups with BTFG. His departure comes just weeks after Commonwealth Financial Planning agreed to an enforceable undertaking with ASIC. Financial Recruitment Group state manager for New South Wales Conor Donoghue explains that while there were several changes in the heads of dealer groups last year, continuing merger and acquisition activity has caused this to slow as businesses focus on consolidation. "This year [there] has been continued acquisition and consolidation work as well, but there probably hasn't been the amount of people coming in externally as we probably saw a few years ago," Donoghue says. "It has definitely [eased]. There has still been movement and there are still businesses buying other businesses and consolidating and merging them in, but I don't think we've seen as much activity at the senior levels as we have seen in the last year." He explains that although merger and acquisition activity hasn't forced existing heads of merger businesses out of the industry, it has caused a shift in business focus. "The skill set that is needed can sometimes change through [mergers and acquisitions] as well. If there is consolidation happening, it is specific skill sets needed to bring businesses together to actually utilise it. We've seen quite a lot of that happening over the past year in financial services," he says. But uncertainly over the future of the business is likely to increase levels of consolidation in the next year, further impacting on executive movements. "I think we'll probably see more activity at the second tier size businesses. There is a huge uncertainty in the industry and in the market round regulatory changes - what's going to happen around FOFA (Future of Financial Advice) and what's going to happen for the whole

of the future of financial advice. So I think we have seen some consolidating with other advice businesses as well and I think we'll probably see more activity with that in 2012," Donoghue says.