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Advisers warned to think before jumping

Financial advisers are at risk of selling themselves short and potentially devaluing their businesses by aligning themselves with bigger groups.

Friday, November 24th 2006, 6:37AM
Integrate FS managing director Jamie Coltman says that the financial services industry has heated up recently, especially over future distribution channels.

“That’s created some level of panic and confusion as players jockey for position.”

“Some advisers are jumping at options such as joining a franchise, or becoming aligned to particular suppliers, simply because they haven’t taken time to do their homework,” he says.

Coltman says franchise systems can deliver good systems and processes; however he is critical of how the wealth is shared in these arrangements.

“Wealth creation is slanted almost entirely in favour of the franchisor.”

He says one only needs to look at who earns the major financial gains from franchising, what ultimately controls the business, who dictates whether or not they are able to diversify and who is able to dilute original franchise rules on things like geographical territories.

“It is not the franchisee,” he says.

“Next, advisers should take a closer look at the PE ratios for some of the bigger publicly listed companies within their industry and compare them to what they could sell their businesses for. They then need to ask why there is such a big gap and how to narrow it.

“Advisers need to be part of a structure than enables them to share in the full rewards and maximise their ultimate market value,” Coltman says. He says some suppliers are going back to tied or semi-tied adviser forces to capture market share and control distribution. This may bring into question an adviser’s fiduciary responsibility, Coltman says, as well as minimising market value of the adviser’s business.

“Financial advisers, like many of their own clients, go into business to build and maximise their market value. They need to think carefully about limiting their market of suitors,” Coltman says.

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