The financial planning market is undergoing significant disruption due to rising compliance & educational standards, as well as removal of product trail commissions. How does one make money in this environment?
As we mentioned in May 2018, many financial planners and dealer groups previously reliant on the trail commissions that come from selling products which don’t necessarily meet clients’ needs, can no longer survive. Nevertheless, we believe one of our portfolio holdings Fiducian (ASX:FID) can grow its market share through selectively acquiring competent financial planners who are leaving the larger dealer groups.
We believe the key driver of FID’s continued success is its integrated wealth management model which provides cost-effective services to underlying clients across:
1) Fund of funds: allocating the funds of its clients across different expert managers in return for a multimanager fee
2) Platform: administering the funds of its clients by providing reporting functions and various legal accounts in return for a platform fee
3) Advice: providing advice to clients in return for an advice fee
Being vertically integrated means you are agnostic across the entire financial planning value chain, except for the expert funds management part which FID does not participate in. This is an important point because vertical integration was a contentious topic during the recent Royal Commission. FID acts in clients' best interests by restricting itself to being a "multi-manager" i.e. it picks the equities and bond managers rather than individual positions. And its track record at selecting expert managers has been pretty strong so far:
If you would like to learn more about Fiducian and how we think about its risks as well as opportunities, please contact email@example.com