Recent research points to further evidence that the competition for advisers’ loyalties is heating up across various sectors of the advice landscape. We’ve been reporting on the disruption that new regulatory realities are creating in the business environment, and the likely emergence of new business models that will be the result. Here we review a couple of real world impacts from this transition, which reveal how advisers could potentially benefit from the disruption facing the industry. Adviser power resides in their ability to exercise choice.
Advisers are reviewing their relationships with licensees, with a view to getting real value for money for their licensee fees. Potential fee for service models that enable advisers to only pay for the licensee services that they need and use are part of this. Licensees are transitioning from product revenues and rebates for advisers, towards revenues generated by fees paid by advice businesses. This is resulting is increased competition for advisers in areas where traditionally there may have been a relationship between service providers and a licensee, and advisers will be able to exercise their power by voting with their feet, should they not get a satisfactory proposition from their existing licensee or service provider.
An example is highlighted in a recent report by UBS that says platform profits are being squeezed at a time when advisers are consolidating their relationships with them. Average margins across all the four major banks, AMP, IOOF, Hub24, Netwealth, OneVue and Praemium have decreased by over 25% in the last four years and UBS analyst Kieren Chidgey told Professional Planner that “We believe platform administration fee margins on contemporary products could fall to 30bps or below (from 80bps, 4 years ago) over the next five years”.
Recep Peker, research director at Investment Trends was quoted in the same article as saying “The platform landscape is changing at pace. Post-royal commission, the most cited platform selection driver is now fees, with low overall cost to clients overtaking efficient admin.” He also noted “Planners will be evaluating their technology partners, licensee and product set more critically than ever as they seek solutions that best meet the needs both of their clients and their practice,” and mentioned that platform providers are now using pricing cuts to compete for key relationships with advice practices.
Real Risk For Legacy Licensee’s
A perfect illustration of the impact that the changing nature of the revenue models for licensee’s was having was found in a Countplus document that was prepared for an extraordinary general meeting (EGM) to ratify acquiring Count Financial from the Commonwealth Bank. It said that legacy revenue streams associated with Count’s platform contracts, including platform rebates (which will continue to decrease as a result of reforms) would be negatively impacted, and as such “Count is expected to experience an approximate 60 per cent revenue decrease in this regard once all expected reforms are implemented.”
Details from the document that were published in Money Managemnet also indicated that Countplus recognised further threats to their potential offering. “There is also a risk that platform providers may seek to terminate their arrangements if they do not consider the arrangements to be in their interest once the revenue arrangements change.” The document also foreshadowed changes to licensee services across the market and the potential impacts. It said “it is expected that there will be a repricing of licensor services in the market generally. As a result of the envisaged market re-pricing, there is a risk that Count’s member firms may terminate their arrangements with Count if they do not support the new pricing model. This may have a material impact on Count’s revenue and future profitability,”
This dynamic will not only affect Count, but all licensees who are transitioning their revenue models. Many advisers will be able to head somewhere else if the licensee's value proposition is not up to scratch.
These changes will mean that information and intelligence on products and services used by advisers will be at a premium for both advisers and industry players looking to reform and rejuvenate their service offerings. A timely source of information in these areas will be the soon to be launched Adviser Ratings service - Adviser Marketplace. In the next fortnight, Adviser Ratings will be opening the first stage of the adviser marketplace, where advisers will be able to rate, review and compare products and services in the market. This will include financial products, software providers and platforms and the information will be made available to advisers who have claimed their free profile on adviserratings.com.au
We look forward to sharing these results with you soon!