Grandfathering: Boutique licensees better off

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M & A consultants to the financial services industry say there are ways around grandfathering provisions, but it’s the smaller AFSLs that have the advantage.

Radar Results has lodged a submission to Senator Arthur Sinodinos, Assistant Treasurer, calling for a decision on the issue of the grandfathering legislation and how it's inhibiting the process of moving practices between licensees.

In his submission, Radar principal John Birt explained that unless the legislation is changed, the value of AR business may fall. However, boutique licensees will be seen as a more attractive acquisition proposition.

This is because the grandfathered commission can be moved between licensees, as long as the new licensee had a distribution agreement in place with that product provider as at 30 June 2013.

The main issue is that the remuneration can’t be passed on to authorised representatives. Birt estimates that about 2,000 to 3,000 advisers could be affected by the lowering of values.

“Licensees generally are not in the business of buying a financial planning business from their ARs, unless they have to because of some condition in the AR's agreement; such as the exercising of a Buyer of Last Resort (BOLR) option,” he says.

He points out that there are ways around the legislation: By acquiring shares in the business you want to buy, joining the licensee where the commission currently resides or having the commission paid as a salary by the licensee to the new AR. The ‘salary strategy’ would have to be the least attractive.

Birt says, “It's now more attractive to have your own AFSL because you can move the clients and commissions to another licensee, as long as they have abided by the deadline of 30 June.”

The whole profession is waiting for an announcement by the Government on the matter, which Birt says they had promised prior to the election.

AIOFP executive director Peter Johnston has been trying to get in touch with Sinodinos, but says he’s been disappointed so far.

“I’m trying to get to see him…but I think it’s the typical thing of where a minister takes on a new role and he doesn’t want to speak to anyone until he knows what he’s talking about, which is probably sensible.”

Johnston has been in email contact with him, and says that Sinodinos, Joe Hockey and Mathias Cormann are all “pretty close and of common thought”, so he is positive about an outcome.

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