The sign-on spending spree taking hold within Australia’s financial advisory sector has caused many to question the ethical nature of financial bonuses and their benefit to clients and the greater advice industry.
InvestorDaily understands financial payments that have been on offer to financial advisers of late from larger institutional groups range from $400,000 for individual practices to $250,000 for individual advisers and, more specifically, upfront payments of $40,000 to an adviser who is believed to earn $150,000 annually.
Strategic Consulting and Training (SCAT) managing director Jim Stackpool told InvestorDaily the increased use of sign-on bonuses from independent groups to institutions showed a significant lack of leadership across the industry.
At present, Stackpool said the state of Australia’s advisory sector could be equated to “a drug company buying a bunch of medicos”.
The creation of pricing wars in the advice sector was “enviable crap” that the industry continued to accept, he said.
“It’s obviously clear when a manufacturer and provider takes a stake in the distribution that no matter how much it is painted as supporting the independents, there is clearly an alignment,” he said.
“All the provider wants is to grab distribution, so the money that has been taken can truly not be in the best interest of the client.”
In the past fortnight alone, listed advisory and broker Wilson HTM Financial Group has lost 11 staff to rivals, with Macquarie Private Wealth picking up six and Ord Minnett hiring five, allegedly on the back of sign-on payments.
Wilson managing director Andrew Coppin labelled the industry’s fondness for sign-on bonuses as “short-termist thinking”.
Coppin would not comment specifically on Wilson’s recent staff losses, however, he said it was clear many advisers within the industry were not thinking about the longer-term proposition.
He said advisers were only thinking about the $250,000 or $400,000 dangled in front of them, and not about the repercussions of not being able to write $400,000 a year in business and a company clawing back bonuses.
Sign-on bonuses had been part of the industry for a long time and generally accepted by two stages of the adviser chain, the top and the bottom, he said.
“[It happens at the] top because firms feel that things are going up forever and they are prepared to pay for big business writers. The big business writers feel that it’s not going to go up forever,” he said.
The bottom also falls into two categories, with advisers thinking the markets may not go up and still taking a cheque and selling their client base to the highest bidder. Then there were firms that were trying to find more revenue because they had no money, Coppin added.
While he acknowledged sign-on bonuses were not illegal and advice incomes were down 25 per cent to 30 per cent, he still questioned whether an adviser accepting a cheque from another group was the best outcome for clients.
“In my view, and I’ve been around 24 years and I’m still happy to take the moral high ground, I think the most important is the clients,” he said, adding that Wilson did not pay sign-on bonuses.
Robbie Bennetts Enterprises founder Robbie Bennetts said in some cases where advisers had not had much growth due to the global financial crisis, revenue became “very important to them”.
“Nobody moves without thinking they are not going to deliver good, if not a better, service to clients . though some of these offers are making it very attractive to move,” Bennetts said.
“The banks have had more power behind them and are seen as a very powerful organisation and makes them very attractive.”
He said if he was the one with “the big cheque book”, he would be tempted to use it in the current environment. However, he said he had never been involved in sign-ons.
Matrix Planning Solutions managing director Rick Di Cristoforo said the payment of sign-on bonuses could be a contentious issue, however, it might not be in all cases.
“The payment of a sign-on bonus may or may not be a sign-on bonus. The payment may be a reasonable payment for the disruption of costs from moving from one licensee to another, also known as transition payments,” Di Cristoforo said.
“Where I have a particular concern is where the only motivation is a large sign-on bonus that has nothing to do with a business [motivation], just an incentive. The motivation is the issue, the size of the payment is also an issue.”
InvestorDaily understands some of the advisers who have accepted sign-ons this year have taken the money due to personal debt problems, raising further questions over whether the best interests of the client were put first.
“I can’t say for a minute that there are people out there who are or are not doing that. They may be sign-on bonuses for an adviser who comes over who is a big producer,” Di Cristoforo said.
“We’re aware of large instos running around to some of our licensees.”
He said there was always an implication directly or otherwise that an adviser’s behaviour would change, though that was difficult to prove.
“There are times when a sign-on bonus causes the adviser to move and the adviser moves and it turns out to be better,” he said.
“In those situations, the effect on the client is positive. To say all of it is bad and all is outrageous . it’s a difficult one.”
Speculation more institutions had turned to large payouts began earlier this year when business ties between Count Financial and BT Financial Group (BTFG) became strained following BTFG’s poaching of Count firms in March.
At the time, the Commonwealth Bank of Australia-owned Count dealer group called for the withdrawal of BTFG as a key sponsor of its annual conference.
Since then, other institutions, including Australia’s big five, have been accused of pulling out the cheque book as part of their recruitment strategies.
One institution that has been engaged in sign-on payments and believes there is client benefit in switching licensees is National Australia Bank’s wealth arm, MLC.
“Advisers should not be disadvantaged by moving licensees or locked into a licensee that still relies on volume rebates or other old-world distribution models,” an MLC spokesperson said.
“Where necessary, MLC has made payments which compensate advisers who choose to break existing commercial arrangements.
“However, we believe that the MLC licensee offer speaks for itself and do not believe in making material cash payments to advisers as an incentive to join our networks.
“Advisers are attracted to our offer because of our demonstrated capacity to succeed in a fee-for-service environment, and because our primary focus is on growing profitable, client-centric advice businesses.”
Stackpool said another concern in the wake of advisers shifting licences was the lack of industry transparency over ownership.
“Why isn’t the industry moving holus-bolus about who owns who? I’m not against ownership taking interest … but let’s make sure there is absolute transparency that this is no longer an independent group,” he said.
He said the industry had spent years acclimatising to the notion of regulatory change in the form of the Future of Financial Advice (FOFA) reforms.
In the time it had taken to understand and fight for better change, he said the industry had not afforded itself a “clear story”.
“We’ve spent all these years with FOFA . great groundwork that has been done, yet we allow these guys to buy the real estate and buy the distribution and we don’t have a clear story. It’s aligned advice, but just come out and say it,” he said.
Macquarie, Ord Minnett, BTFG and CBA all declined to comment on payment speculation when contacted by InvestorDaily.
