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[The Wrap] Dealer group land like a game of Risk

If advisers didn't have enough on their hands at the moment, the latest challenge is the changing face of the dealer group network.

Friday, July 10th 2020, 1:56PM 4 Comments

by Philip Macalister

If you have ever played the popular game Risk you will know it's a strategy board game of diplomacy, conflict and conquest.

It has simple rules, but complex interactions.

To me that sounds just like what's happening with the various dealer groups across the financial advice market right now.

In the past week rumours started swirling around the market that one of the bigger groups was about to takeover/merge/acquire one of the mid-size groups.

The deal hasn't been done yet, so we have chosen not to name the parties out of respect to them so they can finalise their discussions. (One is probably playing it's own internal Risk game amongst stakeholders as it inches to a decision).

Meanwhile, Newpark is regrouping its army, but how big it will be after Partners Life new FAPO model where override commission is paid to FAPs is unknown.

Good Returns understands that Newpark will be announcing its new model around August 23. If Covid-19 hadn't rolled its dice and pushed licensing back a year it's questionable if the group would still be on the board.

Last year we reported that Planet Group had decided to stop playing the game, and it looks likely to be joined one of the newer-co-operative groups which looked to provide answers to members a while back.

We're bound to see more dealer group battles in the lead up to the new regulatory regime. And it's bound to leave many advisers looking for a new home if previous deals are any benchmarks.

One of the more recent one was when Mortgage Supply decided to join up with new-comer Astute. Many of the advisers with Mortgage Supply, and particularly its non-branded group, NZMA, choose to find new homes.

For advisers there is a growing imperative to ensure they find a group that fits with their own beliefs and business practices.

For dealer groups the pressure is coming on to deliver appropriate services to their members at the right price points.

Again, not naming names, but one mortgage group went to the market with a low price offer - 3% of commissions - however we understand that has ramped up to 10% of the commission plus GST (even though commission is zero rated). That pricing is the same as a franchise model like Loan Market. But under the franchise there are a huge range of added services starting at brand and working through to many other support services.

How a non-branded group can charge that sort of pricing is indeed an interesting question.

Expect many more twists and turns in dealer group land.

 

 

Tags: Opinion

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Comments from our readers

On 13 July 2020 at 11:51 am BayBroker said:
Excellent.

I've said for a long time that Dealer Groups were a necessary evil. Especially to the new entrant into the risk insurance industry.

Hopefully insurers will follow Partners Life's lead by paying all available commission to advisers, and then letting advisers decide for themselves how much value a Dealer Group gives them, and importantly how much that value is worth.

For a $100,000 API a year adviser, would $20k-$30k be a reasonable cost? I'm not sure about that personally.
On 15 July 2020 at 10:35 am valkyrie6 said:
When I first started as a mortgage adviser 20 years ago it wasn’t compulsory to belong to a dealer or mortgage aggregation group as such, adviser businesses chose this member ship if they thought it added value and back then in most cases it did.

Some adviser businesses had relationships direct with lenders as their application submissions were of a high quality and standard and their pull through ratios /settlement ratios were in the 90 % plus bracket.
Groups back then had the sole wellbeing of the adviser member at heart and their core focus was in helping the adviser businesses grow and develop, dealer groups focused on nurturing lender relationships first rather than focusing on their own profit margins.

A decade later with lenders making it compulsory to belong to a “’dealer group”’ to be able to access lending produces created a different playing field where dealer groups / mortgage aggregation groups became more of a bums on seats game where the more members on the books the more money the group would make which then made a dealer group a more of a salable business especially with insurance overrides being a large component of a dealer groups income.

Have some dealer groups lost their way?

I think possibly yes, these large overseas own groups are more about control, controlling commissions, controlling CRM’s systems, controlling client data, to the point where their members become nothing more that contracting employees sitting under a group FAP license, with these groups more focused on sending profits overseas and trying to make it so difficult for member to leave the group it borders on bulling type relationship.

After all the fees charged Have they improved the Adviser market and created better quality advisers and improved the level and standards in the industry?

Don’t get me wrong there are still some good dealer groups around who are focused on supporting the adviser and adviser businesses with a genuine focus and passion for the industry which is refreshing to see, but I fear the more the larger Australian owned groups buy/merge/acquisition smaller groups in NZ the closer we get to an industry monopoly of foreign ownership, so not sure if that will be a good thing for the NZ consumer.

Bank turn around times have not actually improved in the last 10 years regardless of technology and from what I hear the quality of mortgage applications that lenders deal with daily have not improved either so you can’t blame the banks if they get overrun with poor applications all the time.

Not blowing my own trumpet but last calendar year I had 100% draw down ratio with a lender which means every deal I sent was approved and settled, I did not use a fancy CRM and load my clients personal information into an overseas platform, , I did not need guidance from a dealer group , and going forward under a FAP license I’m hoping to have a business model second to none.( that’s the goal anyway) .

I guess at the end of the day we have to work out what’s actually better for the banking NZ customer, personally I think my clients will be happy with my full disclosure /accountability business model going forward.

On 15 July 2020 at 4:25 pm Amused said:
I think valkyrie6 nailed it. Yes dealer groups still have a support role to play in the industry going forward but allowing them to become Financial Advice Providers when they don’t give advice to clients defeats the whole point of licensing.

On 22 July 2020 at 11:52 am BayBroker said:
@Amused - agreed. There is one reason and one reason only that a Dealer Group would become a FAP. Especially given PLL's stance on overrides now.

If you write $100k of premium with PLL is the $30k in additional revenue you would receive more than you would pay a Group for the "value" they give. Or could you contract someone to give you that value for less?

I'd suggest the altter.

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 5.50 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 ▼3.85 ▼3.95 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.55 2.65 2.79
Kainga Ora 4.43 ▼2.93 ▼3.07 ▼3.24
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac ▼3.39 3.45 ▼2.99 ▼3.35
SBS Bank 4.54 ▼3.05 3.19 ▼3.25
Lender Flt 1yr 2yr 3yr
SBS Bank Special - ▼2.55 2.69 ▼2.75
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 ▼2.79
The Co-operative Bank - Standard 4.40 3.05 3.19 ▼3.29
TSB Bank 5.34 3.35 3.49 3.79
TSB Special 4.54 2.55 2.69 2.99
Wairarapa Building Society 4.99 3.65 3.69 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.05 3.13 3.12

Last updated: 11 August 2020 8:24am

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