The crucial profit motive driving advice lobbying

Mike Taylor

Managing Editor and Publisher

18 October 2021

A majority of the major financial planning businesses which are owned by members of the Financial Services Council (FSC) either made losses or were only marginally profitable over the last two years.

The companies running financial planning licenses which are members of the FSC include AMP Limited, Australian Unity, ClearView Wealth, Dixon Advisory, Findex Group, IOOF and TAL and an examination of their balance sheets for both 2020 and 2021 underscores their interest in lobbying the Government for key changes to the financial planning policy settings.

ClearView, of course, has now substantially exited financial planning following this year’s transaction with Centrepoint, but what is important to remember is that the KPMG research underpinning the FSC’s Financial Advice whitepaper drew primarily from five of the FSC’s financial advice members.

So, the perspectives reflected in the KPMG report underpinning the FSC’s whitepaper are those of large companies which already have the scale and balance sheets capable of adapting to policy changes which deliver a greater flexibility around general advice and greater use of technology solutions.

The balance sheets of those members explain why amongst KPMG’s key findings was that “the cost of advice charged to consumers is lower than the cost to produce the advice”.

What those balance sheets reveal is that in 2021, Australian Unity Personal Financial Services reported a loss of $6,366 million, while in 2020 the TAL-owned Affinia Financial Advisers reported a loss of $915,332, with two of IOOF’s licenses Millenium 3 and RI Advice reporting marginal profitability of $1.561 million and $237,000 respectively and MLC’s Garvan reporting a loss of just over $16 million.

By comparison, mid-sized publicly-listed licensees such as Centrepoint and Infocus Wealth Management look comparatively healthy with profits before tax of $599,000 and $700,000 respectively.

However, an analysis of the overall situation provided to Financial Newswire concluded that almost all financial planning licensees were “losing money or at best report low profitability”.

“Not one is achieving an adequate risk-weighted return on capital,” it said.

This accords with controversial comments made nearly a year ago by CountPlus chief executive, Matthew Rowe who suggested that many financial planning licensees had fragile balance sheets which might not stand up to the challenges ahead.

Rowe said then and affirmed last week that he believed many of the problems being faced by financial planning licensees were owed to the reality that regulatory change and the exit of the major banks had seen the removal of the product subsidies which had underpinned many of the commercial models.

ClearView managing director, Simon Swanson said that there was no doubt that the removal of subsidies had impacted the economics of financial advice making it a scale game.

“You have to get to scale,” he said. “And that looks like around 400 advisers because unless you get to scale you cannot properly deliver on technology, people and process.”

“The reality is that the cost of running an Australian Financial Servicers License (AFSL) with 10 advisers is almost as much as it is for 100 advisers.”