Needles In Haystacks

Loyalty rather than disloyalty is a preferred behaviour in life, from both an individual’s attitude towards another person or entity and also how that same individual or entity is treated by others.

Loyalty is arguably most desired when it is reciprocal and the parties concerned hold a mutual respect for each other.

In business, companies often talk about customer loyalty, staff loyalty and an organisation’s loyalty to its staff and workers.

In financial planning, at a client level, loyalty often comes as a package along with other factors such as trust and a solid relationship.

At a licensee level, dealer groups hold Australian Financial Services License’s that allow planners to ply their trade, so in a basic sense the relationship between dealer and adviser is transactional.

However many dealers attempt to go way beyond this black-and-white approach of mere ‘facilitation’ by building deeper links with their respective networks, through a whole range of dealer service offerings and activities that entwine practice and dealer together.

This appears to be working as new research by CoreData-brandmanagement has revealed that planners have a high level of ‘stated-loyalty’ towards their licensees in Australia.

In fact almost 9 out of 10 planners (87.9%) note to being loyal to their dealer group.

For an industry that claims to strive for efficiency the above positive sign of the planner-dealer relationship… well, positive for at least 13,185 of the estimated 15,000 planners in the country – reveals an area of clear inefficiency inherent within the industry.

By making a few assumptions, I will attempt to outline the degree of this inefficiency.

OK, so let’s assume that the top 30 dealer groups in Australia each have, on average, four business development staff, whose primary task it is to scour the advice market looking for either potential planners and or practices to join their respective networks.

With an assumed salary cost of $100k per BDM – it implies dealer groups are spending $12 million on salary costs alone in the hope of increasing their share of adviser acquisitions in the market.

If the associated business costs of these BDMs are thrown into the mix, the industry is essentially spending $15 million-plus a year on activities that provide no net gains at an aggregate level.

The above costs are simply being borne on activities whereby the industry ‘chews itself up’.

i.e I take one of your planning practices, while the next dealer group takes one of my planning practices… and the wheel keeps turning.

If we revisit the earlier assumption that there are 1,815 planners in Australia who don’t state they are loyal to their dealer, some of these may be potential flight risks for their given dealer.

However not being loyal isn’t an automatic sign that these planners are looking for the exit sign.

Yet, by not pledging their allegiance to their dealer it does imply that they may be pervious to moving if one of the above BDMs was able to locate them and make them an offer that allows them to confidently estimate the grass would be greener with the new prospective dealer.

However of the estimated 1,815 who don’t have stated loyalty, there will be a reasonable proportion whom have no intention of departing – it is simply that their relationship with their dealer is likely to be a love-hate one and the dealer hasn’t taken it beyond the basic transactional stage of providing the adviser with a license to operate.

The decision to change dealer group is not something that planners make lightly.

Therefore even by making optimistic assumptions on the number of planners who may leave their dealer in any given year, the mathematics behind the numbers reveal the inherent inefficiencies of the industry.

Let’s assume 1,300 of the above 1,815 planners may consider changing their licensee arrangement, and let’s assume 100 of these may opt to get their own licence rather than join another dealer – this leaves a potential pool of 1,200 advisers.

In reality the numbers are probably lower as advisers who are regularly contacted by CoreData are small businessmen and women, with other more pressing priorities ahead of who their dealer is, and it often requires things to be severely broken for planners to move.

So where does this leave all the BDMs who are running around the country looking for advisers to encourage to join their network?

On the above estimates that leaves 10 potential adviser targets for every one of the 120 BDMs seeking to acquire them.

In an industry of 15,000 individuals that is the equivalent of finding a needle in a haystack.

Advisers report that they are regularly approached by BDM’s who call to inquire if they’ve fallen out of love with their dealer and would be open to moving; most BDMs would point to having the door slammed in their faces at this point.

Using multiple regression analysis CoreData has developed an acquisition model that allows BDMs to better identify planners who may actually be one of their needles in the haystack.

This article appears in the latest edition of IFA magazine.