The contribution of adviser fees to dealer group running costs is falling and only one dealer group in the Dealer Group Advisers (DGA) annual Dealer Operational Report has its total dealer costs met by adviser charges. The unnamed group featured in the minority of groups not operating at a loss, DGA researcher Andrew Wheeler revealed.
One of the reasons Wheeler attributes to its costs being met is that it operates in the risk space where costs are typically lower than for other groups. Typically risk advisers are older and not interested in business coaching, and typically there is less training. Of the 27 dealer groups operating with more than 50 self-employed advisers, adviser-sourced payments on average represented only 70 per cent of the total dealer income; a drop of 3 per cent on last year’s figures.
“Even with 30 per cent of revenue from other sources, dealers overall only break even with many incurring substantial losses, especially the larger groups”, Wheeler said.
“Generally the adviser payment only covered the direct contact and compliance staff, research, adviser software, conference and brokerage processing. All other staff, rent, travel and a host of operating expenses needed to be recovered from non-adviser income, typically volume rebates, sponsorship et cetera”.
The report found the level of expenditure among dealer groups varied dramatically. “For instance, some spent four times as much on compliance and nine times as much on adviser contact staff as did others”, Wheeler said.
“The larger dealers costs have increased by more than 25 per cent over the year. This is a combination of inflation, extra compliance and extra advisers”, Wheeler said.
“If you’ve picked up an extra 5 per cent of advisers, your costs have gone up by 25 per cent. There’s perennial demand from advisers for more services. It fascinates me the value people are getting in comparison to what dealers are paying for. On average, dealers are spending $43,000 for every adviser and $79,000 for each adviser business on their books. That cost varies”, Wheeler said.
“Some have a cost of around $20,000 per adviser business and the highest is $150,000 per business and $88,000 per adviser.” In addition to subsidised costs, he said he had heard of other inducements dealers were using to lure advisers to their group.
“You hear deals of six months to two years of no fees for advisers to join in particular groups”, he said. “Where someone is getting a honeymoon period of no fees, it’s regarded as a help for the transition period. Six months is just recognising the cost, anything over that is an inducement. I’ve heard of some cases where people are offered money”.
“Other ideas are that we are having an overseas conference and you and your wife can come if you sign now. There are some advisers who naively believe they should have everything for nothing and will regularly screw a deal that is too hard for the dealer, but it’s often too hard for most to move regularly.”
He said he believed it was not economically viable to have your own dealer license. “Costs are high to run your own dealer licence”, he said. “If you pay $60-70,000, your total costs are $35,000 after tax and you can get on with running your business. I don’t think its ever viable to have your own dealer licence. If you’ve got 10 advisers working for you, you’ve got a bloody big compliance problem.”
This is Wheeler’s third Dealer Operational Report, and this year’s is is the most comprehensive, with almost three-quarters of dealer groups operating with 50 advisers or more participating.
