Commercial agreements stop independence

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Grandfathering is being used as the reason licensees are reluctant to move around at the moment, but the real issue is commercial arrangements put in place by the dealer, says an AFS independent licensing provider.

Pathway Licensee Services general manager Kate Humphries told Wealth Professional while grandfathering arrangements are preventing people from moving around, feedback from authorised representatives shows the greater problem is commercial arrangements put in place by dealers.

“We apply for licences for advisers who no longer want to be handcuffed to a particular licensee or a particular product… But there’s not very much we can do when they have already entered into these commercial agreements.”

Advisers wanting to apply for their own licence have told Pathway they are unhappy with commercial arrangements in place but are reluctant to say what those are because Pathway is a compliance and governance business, said Humphries.

“Unless we look at a contract it is very difficult for us to tell what exactly is tying an adviser to a particular institution. It’s not something those advisers want to discuss.

“It’s because I think they feel there’s a bit of a stigma attached to us knowing they have an obligation in place to support a particular product or suite of products, I’m assuming.”

Traditionally, most advisers have been aligned with a big institution or particular product, but FOFA has pointed out to consumers that there could potentially be a conflict of interests there, said Humphries.

Pathway’s view is the easiest way to provide non-conflicted advice is to be independently licensed, she said.

“It’s the closest you can get to true independence. If you hold your own licence you do not have institutional influence or institutional leadership – you control your own approved product list, you get to determine what the agreements are that you have in place with product providers and your own clients.”

The ring-fencing Humphries sees is similar to Synchron director Don Trapnell’s experience. He told Wealth Professional earlier this month his company intended to lay a formal complaint to ACCC over licensees using “Hotel California provisions” to trap advisers.

One method of doing so is by charging exit fees, and the other is having a compulsory review of investments of all clients built into their dealer transfer agreement, he said.

Meanwhile, mergers and acquisitions consultants Radar Results recently released its six-monthly price guide on the value of financial planning and accounting practices.
While industry sources suggest practice values have fallen due to grandfathering legislation, research shows valuations remain stable although since July many sale transactions have stalled, Radar Results principal John Birt said.
Last month Radar Results lodged a submission to Assistant Treasurer Arthur Sinodinos on how grandfathering legislation and how it is inhibiting practices from moving between licensees.

FOFA changes have meant advisers who move from one licensee to another after 1 July lose their grandfather commission on investment products.


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