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Recent Articles

Banks carve up platform market - Money Management 28 January 2010

Fund manager payments breed scepticism - Money Management 18 December 2009

Product complexity abandoned - Money Management 30 October 2009

Planners look to cut client costs - Money Management 29 October 2009

Sentiment returns to pre-recession levels - Money Management 22 October 2009

PJC fails to alarm planners - Money Management 24 September 2009

Adviser sentiment rebounds - Money Management 20 August 2009

Meltdown takes heavy toll on financial planners - Money Management 19 March 2009

Banks carve up platform market

Money Management, 28 January 2010

Page 1
Mike Taylor

Control of the Australian platform market has nearly halved in the past four years to be dominated by three of the nation’s big four banks.

That is the bottom line of a research analysis undertaken by Wealth Insights, which revealed that in 2006 there were 15 different entities owning or controlling platforms, while today there were just eight. That number will decrease further if the Australian Competition and Consumer Commission (ACCC) approves National Australia Bank (NAB's) acquisition of AXA Asia Pacific.

Perhaps just as importantly, the Wealth Insights analysis has revealed the degree to which Westpac’s acquisition of St George delivered the combined group market dominance in the platform space well ahead of even its most aggressive banking rivals.

While much of the ACCC’s attention on the merger was directed towards the impact on bank branches, funds management and financial planning, the Wealth Insights analysis has revealed the benefits to the banking group of the combined BT and Asgard platform offerings.

According to the managing director of Wealth Insights, Vanessa McMahon, the merger was “inspired” in that it served to deliver control of one of the leading platforms for “non-aligned” planners in the form of BT along with a platform for “aligned” planners in the form of Asgard.

“It may not have been obvious to everyone at the time but it proved to be very clever because it has had the effect of delivering the Westpac Group control [of more than] one-quarter of the primary market (the platforms nominated by planners as their primary/preferred platform vehicle),” she said.

With the ACCC currently considering NAB’s acquisition of AXA Asia Pacific, Wealth Insight’s analysis has revealed the degree to which this would further impact control of the platform market, as well as the implications of ANZ moving, as rumoured, to acquire IOOF.

The accompanying table, provided by Wealth Insights, while revealing the change in control of the platforms and where control now resides, does not indicate market share. Rather, it indicates the degree to which those platforms are used by planners.

The table also reveals the scale of the change generated by NAB’s acquisition of Aviva compared to IOOF's merger with Australian Wealth Management and then its acquisition of the Skandia platforms.

What is clear, however, is that Westpac/St George/BT is dominant both in terms of usage and preference on the part of planners.

McMahon said when assessing the impact of the consolidation that had occurred in the platform market, it was important to recognise the significant barriers to entry, which made it highly unlikely that there would be any new entries.

Fund manager payments breed scepticism

Money Management, 18 December 2009

Page 1
Mike Taylor

Ratings houses that rely on fund manager payments as their main source of revenue are not fully trusted by financial planners.

That is the bottom line of new research conducted this month by Wealth Insights, which also suggested some dealer groups might need to change the nature of their relationship with their research providers.

The research, which comes at the same time as a number of research house principals have been debating their commercial models, also pointed to the need for some of them to remove the perception that fund managers could actually pay for their ratings.

The Wealth Insights research found that 64 per cent of respondents either agreed or strongly agreed that a conflict of interest was likely to exist if research houses were paid by fund managers for their ratings.

Importantly, 26 per cent of respondents were neutral in their response, while only 10 per cent suggested that no conflict existed.

Wealth Insights managing director Vanessa McMahon said the result showed that financial planners were clearly concerned about the potential for a conflict of interest when research houses relied on fund managers as their main source of revenue.

She suggested that the problem ran even deeper for the research houses and the fund managers in circumstances where planners also held concerns about the ultimate impartiality of the ratings provided.

McMahon pointed to the fact that only 30 per cent of respondents believe research houses could offer impartial advice when fund managers paid for their ratings, with 29 per cent suggesting there could be no impartiality and 42 per cent being neutral.

She said in the focus groups that had accompanied her research, planners had concerns that fund managers were prepared to “buy a rating”.

McMahon said the degree to which planners were uncomfortable with existing researcher remuneration models was indicated by the fact that 45 per cent had said they either disagreed or strongly disagreed with fund managers being able to pay research houses for ratings.

Indeed, the Wealth Insights survey revealed that only 22 per cent of respondents agreed with such arrangements.

The research also pointed to a recent dampening in sentiment among financial planners as the rapid recovery in markets took a pause in October and early November. The Wealth Insights Adviser Sentiment Index, which recovered strongly between February and late September, showed a dip in October but remained in positive territory.

Product complexity abandoned

Money Management, 30 October 2009
Benjamin Levy

Financial planners are discarding complicated investment products because their complexity is preventing them from moving their clients’ investments quickly enough to take advantage of market upswings. The development comes at the same time as research just released shows that financial planners are dropping complex investment products and taking up simpler options instead.

Wealth Insights managing director Vanessa McMahon said research showed financial planners were abandoning complex financial products in favour of tried-and-tested products that followed cash or domestic equities.

She explained that financial planners were shifting to ‘vanilla’ products because they were unable to lift their clients’ assets out of complex products and back into the market quickly enough to take advantage of a market upswing, a view with which George Lucas, managing director of Instreet Investment, agreed.

“They have a lot more paperwork to do… so therefore, it’s a lot harder for them to switch out of equities into cash, and if they don’t have a fund manager who’s doing that for them, then it can take a lot longer to do the asset allocation,” he said.

Indy Singh, managing director of Fiducian, said the over-engineering of many products meant that financial planners were unable to retrieve the investments, and as a result, were abandoning complicated investment products.

Planners look to cut client costs

Money Management, 29 September 2009

Mike Taylor

Active managers may be amongst the first to feel the squeeze as financial planners look to reduce
costs to their clients without squeezing their own margins, according to new research by Wealth Insights.

The Wealth Insights research, conducted over the past two months, has revealed a subtle shift by planners in response to greater client awareness about fees, charges and commissions.

Wealth Insights managing director Vanessa McMahon said that her company’s surveying of financial planners as well as focus groups had revealed that there had been a definite squeeze on fees generated by both the global financial crisis (GFC) and clients’ increasing awareness of how planners are remunerated.

McMahon added that the planners had responded to this by looking to reduce their costs and then pass the savings on to their clients.

“I think one of the primary results has been that planners are now less interested in actively managed funds and more attracted to the lower costs offered by indexed funds,” she said.

“The view of clients, and therefore planners, is that if the active managers didn’t see the GFC coming, then why are they worth more than indexed funds?”

She said this trend was already being manifested in levels of demand for indexed products and exchange-traded funds, which offered lower member expense ratios.

“I think the changes have been subtle but are very likely here to stay,” McMahon said. “Planners have looked at where they can save costs, and there is a real attraction to an indexed product that has an MER of, say, 30 or 40 basis points when it is compared with an actively managed product that has an MER of as much as 110 basis points.”

She said that the trend away from actively managed products was easy to understand in circumstances where the performance of many indexed products had been as good or even better than the actively managed products.

McMahon said she believed it was likely the shift away from higher cost products would ultimately impact dealer groups in the form of lower rebates.

Sentiment returns to pre-recession levelss

Page 1, Money Management, 22 October 2009

Mike Taylor

The recessionary cycle and its impact on Australian financial planners appears to be over, but the psychological wounds are likely to linger, according to the latest data released by Wealth Insights.

The data reveals that the cycle of declining adviser sentiment coupled to financial failures and economic adversity began in February last year, reached its depths in February this year, and has now returned to the levels that marked the beginning of the cycle.

McMahon said while the most recent data pointed to a substantial recovery in planner sentiment, there remained sections of the industry deeply affected, not least those planners who had entered the business or acquired businesses just ahead of the downturn.

“In circumstances where they would have based their transaction on multiples of 3.5 times earnings, they have been badly affected,” she said.

McMahon said the recovery of the markets had also been particularly welcomed by planners operating in regional and country areas.

“Those guys were really feeling the impact in February and March,” she said. “In those small communities they tend to be much closer to their clients and it was clearly difficult for them when they found themselves running into clients in the street or in the supermarket.”

McMahon said while planner sentiment had now returned to more acceptable levels, some serious lessons had been learned and many remained extremely cautious.

“There is nowhere near as much confidence as there was 18 months ago, and many planners remain cautious,” she said. “That caution is particularly evident when you begin discussing asset allocation moving forward and goes some way towards explaining the popularity of domestic equities.”

McMahon said while domestic equities had emerged as the big winner, planners had indicated that they would not be jumping into riskier asset classes soon or advocating high levels of leverage to their clients.

“I believe the past 18 months have left an indelible mark on planners,” she said.

PJC fails to alarm planners

Money Management, 24 September 2009

Mike Taylor

The attitude of the planners stands in stark contrast to their industry organisations, which have devoted extensive resources to putting their policy positions before the various government inquiries.

Wealth Insights managing director Vanessa McMahon told Money Management that while planners were broadly aware of the issues being discussed by the PJC and some of the other Government inquiries, they were adopting a wait and see approach.

“Very few [planners] have suggested that the parliamentary committee discussions have prompted them to start changing the way they do business,” McMahon said..

However, she said there was broad recognition that commissions-based remuneration was likely to be impacted by legislative change and, as a result, the value of planning practices heavily reliant on commissions had been undermined.

“They are factoring in the demise of commissions and the multiples they generate,” McMahon said.

On the basis of comments received from planners, she said the practices likely to be worst hit were those with a higher proportion of clients with smaller account balances.

McMahon said on the broader question of what might flow from the Parliamentary inquiry, most believed that while there would be some changes, they would not be too dramatic and there would be plenty of time to make the appropriate preparations.

She likened the attitude being adopted by planners to their reaction to comments by the former Federal Treasurer, Peter Costello, when he suggested that changes simplifying superannuation would mean consumers no longer needed to consult a planner.

“They believed he was wrong then and they believe many of the current suggestions are wrong as well,” she said.

“The bottom line is that many planners regard themselves and the industry as adaptable and very few are actively doing anything in preparation for what is coming,” McMahon said.

Adviser sentiment rebounds

Page 1, Money Management, 20 August 2009

Mike Taylor

Most Australian financial advisers believe the worst of the global financial crisis is over, with sentiment having improved rapidly over recent months, according to the latest Wealth Insights Adviser Sentiment Survey.

The survey has also revealed that, notwithstanding improving sentiment, the bottom lines of financial planning practices have been hit hard, with more than 70 per cent acknowledging that revenue and profits have been impacted.

The survey, conducted in July, revealed that only 25 per cent of advisers now regard times as being ‘very bad’ or ‘bad’, compared to 36 per cent in May and nearly half in February. According to Wealth Insights managing director Vanessa McMahon, advisers are now significantly more optimistic in their outlook, with the mood shift reflecting the steady rise in equities markets over the past 12 months.

“The recovery in equity markets has calmed many distressed clients and worried planners,” she said. According to the Wealth Insights data, 53 per cent of the advisers surveyed now believe conditions to be ‘average’, while 20 per cent regard them as being ‘good’ or ‘very good’.

McMahon said while there was the occasional planner who believed the first six months of 2009 had been nothing more than a bear market rally, most were now generally positive about the future for both their clients and themselves.

She said this optimism was being reflected in views about the planning industry generally, with more than half describing conditions as being ‘mostly good’ or ‘continuously good’ and 40 per cent believing this was ‘both good and bad’.

Looking at broader sentiment, McMahon said advisers had far more confidence in the markets rebounding than they did six months ago, which she believed was the main factor behind their sense of relief and optimism.

The Wealth Insights survey showed that while 44 per cent of respondents were expecting average returns over the next 12 months, 33 per cent were expecting good returns and 3 per cent were expecting excellent returns. This represented a strong reversal on the position revealed in the December 2008 survey, when more than 50 per cent were expecting ‘below average’ or ‘poor returns’.

Where revenue and profits are concerned, the survey revealed that 29 per cent of planners had acknowledged revenue being a lot lower, while 44 per cent said it was a little lower compared with the same period a year earlier. Where profit was concerned, 33 per cent said profit was a lot lower, while 41 per cent said it was a little lower.

McMahon said almost all advisers had suffered a drop in revenue and profit and were reporting losses of between 20 and 30 per cent.

“The past 12 to 18 months have been very challenging for many advisers,” she said. “Some admitted that their personal take home income had reduced dramatically in the preceding 12 months, while others had to reassess their business models.

McMahon said it was advisers who had begun a new business in the past few years or bought an existing business who were feeling the most pain, because they were very reliant on new business as their primary source of revenue.

Meltdown takes heavy toll on financial planners

Money Management, 19 March 2009

Australian financial planners have revealed the deep distress they are feeling as a result of the global financial crisis and the impact it is having on their clients.

Their distress has been revealed in the latest research conducted by Wealth Insights in which, via focus groups and interviews, they have revealed the human cost of the collapse in markets and investment returns, which has included suicidal thoughts, lack of sleep and feelings of guilt and isolation.

Wealth Insights managing director Vanessa McMahon said her research, conducted through January and February, revealed that while clients were rarely blaming their advisers, those advisers were nonetheless sharing their clients' pain and feeling bereft at not having provided better advice.

"Advisers often feel a sense of responsibility for enhancing the quality of life that their clients can enjoy now and into their retirement," McMahon said.

She said almost half of the advisers she had spoken to for her latest research had experienced some sort of physical ailment that they attributed solely to their current stress levels.

What is more, she said these stress levels were being compounded by their perceived inability to know what was the best strategy going forward for their clients.

Among the comments collected by McMahon were, "I haven't had a good night's sleep in 12 months. I've never been so stressed in my life. I probably drink too much now."

And, "I've got shingles due to stress. You don't want to have to wake up in the morning and tell someone they have lost half their money."

The Wealth Insights research has also revealed brooding resentment at the quality and nature of advice being provided by dealer groups, some of which are tied to funds management businesses.

And another comment: "I'm very disappointed in the fund managers, [they all took] the view that this wasn't going to be so big and they told us to stay invested … you can't prove that they knew more, but I'm sure they did.";

The Wealth Insights research has also revealed that it is those advisers who established their businesses in the past few years who are hurting most and have the least knowledge about what to do..

Those who are acting to address their situation are being confronted by difficult choices, including having to accept the loss of a substantial portion of their investment in their businesses - something that has been revealed in comments such as, "I'm running at a loss. I've sold my boat and I'm about to sell an investment property. I've heard about other younger planners getting part-time retail jobs. I've thought about it too, and if I have to I will - I won't tell anyone."

And, "I've got to do something, I've got to merge, sell, tuck inside an accounting practice or something, everyone is talking to everyone".

McMahon said some of the hardest hit planners were those who had bought a practice in the past few years and paid a multiple of two and a half or three times revenue and were still paying off that debt.

"However, their revenue has dropped dramatically and worse, their business would probably only sell for a multiple of one and a half or two (of much lower revenue) today," she said.

McMahon said older, more established businesses were in a much better position to weather the storm.