‘Adviser beware’: Moving to the big instos can cost you thousands

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Advisers have been warned that generous-looking upfront cash offers to move to large corporate licensees can come with a sting in the tail.

According to My Dealer Group ‘s Anne Fuchs it may be extremely tempting to move licensees in exchange for a large upfront cash injection, but this can sometimes be a case of “short term gain, long term pain”.

She believes that advisers who sign on to a large licensee in exchange for a lump sum may ultimately see their revenue streams reduced, or even lost, in the transfer process.

“Many institutional licensees are offering upfront payments equal to three-years’ current volume bonus revenue,” said Fuchs.

“However, they are requiring advisers to sign on to an ongoing FoFA-friendly remuneration model which does not include pre-FoFA remuneration such as volume bonuses, which advisers need to remember, are grandfathered. If they sign on, advisers will sacrifice volume bonuses in exchange for the capital injection. In the long term this means they may potentially be short-changed.”

It’s particularly advisers who have been in the industry for a while and have reached the mid-40s stage of their lives, where lifestyle costs are at a peak, who are considering these deals, said Fuchs.

“Financial commitments related to a growing family make cash injections very attractive,” she said. “But these advisers are likely to remain in the industry for much longer than three years, so the long-term benefit of retaining existing commission structures may be substantially better than initial cash payments in the longer term.” 

It’s essential to consider broader issues, such as the licensee’s approved product list, adviser support model and business philosophy, before taking the plunge, she added.

“Advisers should also consider their unique value proposition with clients, and whether moving to a new licensee will affect the way they do business with these clients or the markets they target,” said Fuchs.

“It really is a case of ‘adviser beware’. Advisers should be asking themselves what they are trading in exchange for a cash payment.”

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