Grandfathering: practice prices take a hit

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John Birt, principal of M&A consultancy firm Radar Results, has become aware of the grandfathering issue currently facing planners, and expects to see a change in legislation.

Not only is the legislation anti-competitive, but Birt says it will definitely affect the value of planning firms trying to sell under this legislation.

Advisers will have to look at selling within their own licensee to maintain the value from grandfathered benefits. This will drastically limit the number of potential buyers for a business.

“It’s a supply and demand scenario and with a lot fewer buyers, the price will be affected adversely, says Birt. “In some boutique Licensee groups where there's only a handful of ARs, there may be no buyers at all for that client register.”

However, the issue is not only affecting the smaller firms, with Birt saying institutions who have budgeted to acquire a large number of client registers in order to grow their own advisory networks, will also suffer.

During the past 12 months he says there has been a large demand for non-institutional client registers by these institutionally aligned advisers. Radar Results says the prices have been considered good, but that is likely to change.

There is a bright light for some advisers. Those that escape the legislation are advisers that have risk-only insurance businesses, fee-for-service businesses, accounting fees and SMSF fee businesses.

More stories:

The far-reaching effects of grandfathering

Financial planning's biggest threat

Grandfathering traps advisers

  • Andrew on 31/07/2013 12:19:58 PM

    Steve, I think you have misunderstood the intention of FoFA. It is designed to get the half wit morons out of the industry not into it. I dont have one client that is interested in talking to a bank adviser or Industry fund adviser and that has been the same for 25 years. I have 15-20 years to go and I am expecting it to be a great time for my clients which will be good for my business. My business will continue to improve as the old school relationship advisers inevitably leave (and the half wit morons) and are replaced by bank and Industry fund advisers who still run a transactional business where "advice" is now the transaction. The way I see the future is that there will be more salaried advisers in the transactional businesses which will be the Bank and Industry fund dealerships where the dealership runs at a loss however feeds the product (the same as now) however my competition, advisers in the professional service client focused advise space will not grow as rapidly as the demand for our services.

  • PETER CORRIE on 29/07/2013 11:54:01 AM

    I couldn't agree with you more Craig Yates and Peter Johnston and most of the other respondents in regard to grand fathering or FOFA/Labor.
    We have a Labor Gov't which has its own socialist agenda regardless of its consequences and business is going backwards as a result.
    Conflicted Remuneration is a socialist term(please look it up) and just an excuse to try and standardize and control pricing and earnings which is not only anti-competitive but in turn reduces incentive, growth and prosperity.
    Who do they think creates the wealth and pays the taxes?
    In Australia today unfortunately if you want to make changes to regulation or compliance you have to get involved politically which I have done and joined the Liberal party .
    If you want to make a difference and bring about the changes we are talking about then you have to get up close to your representative in parliament and push for change.
    Good Luck!
    Peter Corrie

  • Anthony on 29/07/2013 9:46:01 AM

    Great attitude Steve. If you are sick of your clients and no longer want to be involved in making a difference to their lives, give me your book and I'll happily look after them.

  • James Smith on 29/07/2013 9:41:21 AM

    The key to success has not changed - clients that value our advice and service and a commitment to deliver that service. The industry funds and large retail funds will rue the day they disengaged themselves from advisers as we have always been and always will be the glue that keeps clients engaged. Advertising and fancy websites may entice some but ultimately without the care factor of a personal relationship the big institutions will merely offer a commoditised product that competes on price which will see customers come and go and demand more and more for less and less.

  • James Smith on 26/07/2013 1:02:29 PM

    Agreed Drew. That has always been the case as we all know that clients will vote with their feet. The point I am stressing is the lack of recognition for the role advisers play in servicing clients often to bridge the service gap left by the institutions. Why is it legislated that advisers need to justify the service they have provided but the institutions have no accountability ? Transparency is a good thing providing all aspects of the end to end process are acknowledged fairly. The current FOFA legislation does not do that as it relies too heavily on incorrect assumptions about the role of the large institutions who have trumpeted their own vested interests rather than acknowledge their limitations.

  • Drew on 26/07/2013 11:40:34 AM

    If as an adviser, you are providing value for a commission or fee that you are being paid, you have nothing to worry about.

    The impact on your business value of these legislative changes should be and is, irrelevant.

    Do what you get paid to do and you have nothing to worry about!

  • James Smith on 26/07/2013 11:24:07 AM

    Another critical point overlooked by this attack on trailing commissions is the assumption that this is something for nothing. The reality is that advisers are the key relationship manager with the client and are their first point of call for all manner of queries and service issues. Rather than receiving salaries advisers have received a share of the fees paid by client to recognise this key service and advice role which in turn is used to pay for their staff and their running costs. The big retail funds and the industry super funds never have and never will offer the personalised service and advice that advisers provide. The nonsense that they can recruit others to replace advisers is demonstrated by their failure to recruit and manage adequate client service staff to date. You only have to make contact with any one of them to realise this truth. The tragedy is that clients will lose out on a critical personal service and our service industry that should be encouraged to thrive and provide employment is being pulled apart by vested interests and large institutions that have their head in the sand in respect of their appalling track record in customer service. Their attempts to go direct to consumers demonstrate that they simply don't get it or don't want to get it. Either way they are doomed to fail and will bring the whole industry down with them. Advisers will learn to survive by learning to do business without them. A classic lose lose outcome. The price paid for not listening to key stakeholders ie clients and their advisers.

  • SAM on 26/07/2013 11:03:30 AM

    Its clear that this was not an "unintended consequence" of the legislation, but rather it was designed to force advisers to review their clients accounts and migrate them to a Fee rather than commission regime asap., What this does is force advisers to move clients to a fee for service proposition much sooner than later.

  • Mark on 26/07/2013 9:47:20 AM

    Congratulations to the ALP for yet pressing the destruction button on the value of businesses.

    We saw it last week with their FBT changes and failure to consider the flow on effects and here we go again.

    Their incompetence is only exceeded by Kevin Rudd's ego and their reliance on the trade union movement.

  • Steve on 28/07/2013 8:25:19 PM

    You would have to be a half wit moron to get in this industry in the first place but if your in already AND your considering buying another book or advisers client base/business you are a complete knuckle dragging rock ape! You may as well go buy a video store renting out VHS movies. This industry is finished.

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