Financial Planning Bias

Financial Planning Perth : Do you know who is really driving the recommendations from your advisor?  (image source unknown : possibly

Do you know who is really driving the recommendations from your advisor? (image source unknown : possibly

Who is behind the name that is behind the advisor that gives you advice?

Financial Planning Bias – All is not as it seems

We have covered the bias that is inherent in the Australian financial industry a few times now. The key reason for this bias is the government regulatory requirement that all Financial Advisors be licensed with a “Dealer”. That is, an entity that agrees to be responsible for the training, supervising, monitoring and conduct of their particular advisors. This is helpful from the point of view of the Australian Securities and Investments Commission (“ASIC”) as it reduces the monitoring and compliance costs to keep track of the activities of all those advisors.

However, the Australian market has come to be dominated by a very small number of very large Dealer groups. This isn’t a problem really, other than the fact that these large dealer groups are part of large organisations that have lots of products to sell. On average, each dealer group predominantly sells the products provided by its parent. Again, this will not usually be a problem, as there will be appropriate analysis, due diligence and research to ensure the products are competitive and that there is a suite broad enough for the planners to provide appropriate solutions to their customer needs.

The only real problem is that it is not usually all that obvious just who you are dealing with, when you sit down with a financial planner to discuss your financial situation. There will be notations, and disclaimers and the like – but it is often not particularly obvious just who is pulling the strings at a particular planning practise.

Don’t ask, don’t tell. Who is behind your advisor?

Given the recent flurry of legislation aimed at increasing transparency in the financial services industry, here’s my little bit to highlight just who works for who.

“Big 4” banks

Australia’s financial services industry is dominated by the “Big 4”. The ANZ, Commonwealth Bank, National Australia Bank and Westpac. As of today, their combined market value is $245,825,488,489 with a combined revenue from ordinary activities of $98,770,000,000. That’s a value of $10,777 and revenue of $4,330 a year from every man, woman and child in Australia. The Big 4 banks employ over 176,000 people between them. There are plenty of reasons for Australia to be proud of the stength of our banks but the point is that these are very dominant market players. As you would expect, the Big 4 banks own the large wealth management firms, such as MLC, BT, Colonial First State, Onepath and the like.

AMP has absorbed its long term rival, AXA (formerly National Mutual) and has joined the Big 4 as a dominant player in the financial services field.

So, who owns what? Which financial planning groups have a large institutional ownership?

Financial Planning Bias – Who owns Who?

Here is a list compiled by the excellent website This is a site that financial planners refer to when looking for the latest information on this or that threshold or piece of financial data. Please keep in mind that the list is continuously changing, and some connections and ownership positions may have changed. If you find any, please let me know and i’ll update the post.

20120528 Listing of institutional ownership of planning groups - provided by

As you can see, there is a concentration of planning groups around the Big 4 banks and AMP


This kind of list can be quite contentious. Not because of the ownership links, as that is pretty much either a fact or not. It’s open for argument on whether an institution holding a percentage ownership of a financial planning business even really matters. Many people will say that it does not. i know some of the people in Dealer groups on this list that rankle at the idea their recommendations to clients would be swayed by anything to do with how the business is structured. At the same time, there are issues that arise because planners must follow their Dealer guidelines, and these will usually put limitations around the advice a particular planner can provide.

Why would a big institution want to buy into a financial planning Dealer group?

This is a core question on the issue of planning dealer groups. It is an often-stated industry phrase that “dealer groups don’t make money”. As entities, they are expensive and complex to administer, and the bulk of earnings is paid to the financial advisors through salary, commissions or some other form of remuneration.

The key reason an institution would want to buy into a financial planning group is to have a say in the distribution of products – whether that be insurance, superannuation, investment or wealth planning services of one kind or another. Financial planners make recommendations, and many times it involves the sale of a product – so the institutions that offer those products want to have a say in how advisors and planners allocate their product recommendations.

If an institution can buy a big Dealer group, with a large number of advisors then there is every chance that they can benefit through the advisors selling more of their products.

For example, todays Australian Financial Review newspaper includes an article “Count says BT tactics ‘not cricket’” (p 15, Companies & Markets Liftout). Commonwealth Bank recently paid $373 million to buy out the Count business which is a Dealer group heavily used by Accountants. Count financial planners have been very big users of a “platform” (an administration service that offers a number of investments from different managers and asset classes in the one account) offered by BT. In fact, they became BT’s biggest users. It seems that BT has now gone out and lured a number of Count planning groups across to BT under the “Magnitude” banner, and the loss of advisors to BT (which is owned by Westpac) is obviously seen as being detrimental to Commonwealth’s best interests.

To guage some idea of just how important such business is to the relevant institutions, the article talks about very large “retention payments” being made to Count planning groups to encourage them to stay with Count and not make the move to BT.

Interestingly, the article uses the phrase “independent planning firm” when referring to Count, which brings about the yet another question –  whether independence is important? To muddy the waters just a little bit more, ASIC has a very tight definition of circumstances under which an advisor or planning group can use the phrase “independent”, and it is highly unlikely that Count would be able to do so. This simply highlights the difficulties for the average investor, when word usage and definitions are not clear in the nation’s major financial newspaper.

So even if a client does not see institutional ownership as being a big deal, the institutions themselves consider it a very important issue, and fundamental to their financial planning and product selling operations.

Does it matter who owns my advisor?

Once upon a time it mattered a lot. Most Dealer groups only allowed their planners to sell or deal with products the parent company issued. This has changed in recent years, as the advent of “wrap platforms” and more versatile accounts has increased the number of options available for most products. The primary areas where institutional ownership will still impact are:

  • The Approved Product List (“APL”). This will be the list of products from which the financial planner can select solutions for their client. The APL is ostensibly there to make sure advisors only give advice on products they are suitably qualified to give advice on, and that the Dealer has adequately researched. Although most major groups have quite wide APL’s, they do not usually include products that are too similar to their own. Therefore, it can be seen that these Approved Product Lists are yet another way of ensuring that your financial planners sell more of your products than those of competitors.
  • The sales targets for the planner. Some institutions are heavily sales focussed. It can be quite difficult for a planner to ignore these imperatives and pressures. The weekly “how many calls have you made” meeting adds a lot of pressure to client contact.
  • Institutional ownership can make a financial planning position an “employee” arrangement rather than a long term partnership of shared objectives. That is, long term connections between clients and the advisors may be more difficult to maintain, as the advisors work through career paths and job changes in the institution.

These may or may not be important to a client that visits a planner. It’s extremely difficult for a financial planner to add a discussion on this topic in with the plethora of other compliance data and information that must be passed to and fro on an initial discussion with a client, so maybe it’s just one of those things that we put down as a structural fault in the system?

In the vast bulk of cases, institutional ownership will make no difference to the recommendations that an advisor will provide for a given client scenario. In my experience, Financial Planners are fiercely keen to find the best outcomes for clients that they can, and will go to lengths to compensate for any perceived limitations that they may feel exist in their Dealer group.

Of course, many clients actually want to see a link between their planner and a large institution. It can help in situations such as fraud or even for the simple “peace of mind” that comes from the marketing clout of a large institution.

The financial planning industry is consolidating

There has been a huge amount of consolidation within the financial planning business in the post Global Financial Crisis period. Many smaller planning groups have looked at the very large, and growing regulatory burden that goes with having your own Dealer licence, and have decided they’d rather give up on all that, and pass those responsibilities on to a large institution – figuring that they will have more time to see clients, and have less time with administration hassles that do nothing to assist clients in achieving their goals.

It can be quite onerous to hold your own licence. The planning practise that i am a part owner of holds one, and it involves a large amount of work and effort, as well as quite a high level of business risk. We continuously assess the relative merits and detractions of moving to a larger institutional position, so this post isn’t trying to make a valued judgement on whether institutional ownership is a good or a bad thing. It’s just another piece of the puzzle to understanding financial planning in Australia.

The real question is a fairly simple one.

Do you know who has a say in the running of your advisor’s Dealer group, and are you aware of the ways in which this is influencing or could influence any recommendations you may receive?

Hopefully, this post helps to gain a bit of background on the structure of the financial planning industry. It is by no means comprehensive, so if there is an area you would like to see covered in more detail, please simply log-in or sign up to make a comment.


Further Reading The government sponsored information website that contains all sorts of information, calculators and general advice on money.



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