Regulators are partly responsible for this trend as they exponentially increase the complexity and cost of doing business. This disproportionally affects smaller firms, driving business owners into the arms of the aggregators who are only too willing to buy them out. My concern is that regulators seem to prefer a small number of large firms that they can monitor more easily. While this consolidation trend is convenient for regulators and rewarding for product factories, I worry that clients will lose out through higher fees and reduced service levels.
This is a biased opinion piece meant to voice some frustrations and transparently inform you that we are entering the struggle to preserve independent financial planners while regulators, industry bodies and even the supposedly pro-independent fund management houses dither or actively work to push independents out of the industry.
Consolidation is happening
The days of small independent financial planners are ending unless we collectively work to protect them. As a shareholder of a medium-sized financial planning business, I am less concerned about our firm’s survival than I am about the future of sound financial planning. I wonder how a handful of large, bureaucratic firms will look after clients when primarily focused on their management bonuses and shareholder returns.
If you think a few large financial planning firms will result in better service, I encourage you to consider the level of service you receive from your bank. The drive by banks to improve profitability by reducing client service is evident for all to see. Banks want you to service yourself via your smartphone or a web portal. They certainly don’t want you to come into a branch and speak to a qualified person unless you are there to buy something. I suspect that will happen in financial planning if the industry is reduced to a handful of behemoths.
What is best for clients?
Clients generally receive better quality and more personalised service from owner-managed financial planning firms. Many clients want to form a long-lasting relationship with their financial planner. This is relatively easy to ensure in a smaller firm, whereas larger firms employ career-oriented go-getters who are there to build their careers and climb the corporate ladder.
Client service is not the core function of a large firm; profit-driven product aggregation is the goal, and clients are seen as the route to more assets. At the very least, regulators and industry bodies should find ways to protect the future of small independent financial planners so that clients have a choice. Some clients are comfortable dealing with large brands because they value the brand more than the relationship, but this is not universally true for all clients.
A home for independent financial planners
We decided to start a new partnership model to partner with financial planners who want to focus on client service and retain independence of advice. We are not aiming to consolidate their client assets into our product factory; we want to enable financial planners to provide objective and independent advice to their clients. We want to spread the regulatory, technology and compliance costs across a larger number of advisors to limit the impact of these costs while continuing to provide world-class processes, systems and support.
Independent financial planners can outcompete big product factories using shared resources such as FICA monitoring tools and policies, consolidated statements, compliance monitoring and international CRM systems. We don’t think there is a better recipe than an independent financial planner who provides great service and uses shared operational tools and processes to implement and monitor client outcomes.
Conclusion
Some financial planners will be attracted by the lucrative prices offered by product factories for their clients. In some instances, clients might be better off, but in most cases, financial planners who care about clients will feel uncomfortable that they are selling out their clients and staff. I don’t think we have all the answers, but I am not keen to sell out my clients for some extra money.
