Speaking to ifa on Wednesday, Forte Asset Solutions managing director Steve Prendeville said changes to grandfathering arrangements are inevitable, and that this will affect the valuations of practices.
Mr Prendeville pointed to ASIC deputy commissioner Peter Kell and counsel assisting Michael Hodge’s comments made before the royal commission in its fifth round of public hearings, as well as pressure from other parties, including “industry participants, manufacturers, potential legislators” and the FPA.
“Grandfathered revenue was previously not segmented and so on average all revenue from financial planning was attracting say three times recurring revenue as a valuation methodology,” he said.
“I have already brought that in, I’ve reduced that to two times, which equates to two years you’d expect to see of that revenue stream, so immediately we’ve got a 30 per cent fall on valuations with regards to the grandfathered revenue.”
Mr Prendeville questioned the legitimacy of the reasoning put forward by various industry stakeholders for why such revenue should be banned, but added that such a ban remains a likelihood for business owners to consider.
“The reality is that the debate here is whether this is conflicted revenue, whether grandfathered revenue isn’t on income streams that are being serviced, and that is a dramatically flawed concept,” he said.
“I expect though that irrespective of consumer outcomes, adviser business outcomes and particularly given the political environment we’ve seen last night and today, my expectation is that when the royal commission makes its recommendations … that the government will be in no position to say ‘no’, and particularly if it goes through to legislation and we’re in a Labor government, it’s unlikely we’ll see any practical remediation or common sense showing.
“It’s revenue that is absolutely at risk irrespective of validation, and therefore I’m already pricing in a decrease in valuation on it already.”
However, Mr Prendeville said while there will be “no maintenance of the status quo”, the changes within the industry will present opportunities for businesses that are adequately prepared.
“We’re seeing the break-up of the oligopoly as the backdrop to that, and I think as a result of that we’re going to see good businesses grow much like the US experience where we’ve got ‘super-boutiques’ being created,” he said.
“Good businesses can pivot quickly and move to change and are potentially already ahead of any legislative changes, and so good business will survive and actually flourish – it’s the middle of the road businesses who haven’t made the changes yet [that will be challenged].”
Grandfathered remuneration is deferred upfront – seriously the losers whining about fee for service – thank u so much ! My plan fees have since FOFA jumped from $1650 to $3,300 and post Royal will go to $5,500 most clients we could really help are now well out of our interest – scaling back on new clients thanks to the lack of competition and not wanting to work with fee whingers. Great job Jim stackpool
I am 49 years old and have multiple degrees in Finance, been an adviser for 21 years and spent the last 10 years self employed building up a business that I started from scratch with no complaints ever and no exposure ever to any frozen or failed product. I’ve spent my entire career trying to do the right thing by my clients and have continually improved my education. Since the day I became self employed I’ve always worked on selling my business in 2022. It’s extremely disappointing that those plans are now up in the air because of 1) other planners lack of education 2) to be blunt a lack of ethics at all levels 3) planners general lack of accountability themselves 4) continued Government medal-ling caused by a lack of leadership in this industry and 5) the relationship between product and advice.
the whole thing is a disgrace.. the industry is being hit from pillar to post.. harassment at an institutional level! Forget banning commissions.. practice values will drop given the likely mass exodus of planners from the profession.. feel sorry for those planners running a business for 20+ years and now nearing retirement.. just so wrong all of this speculation.
had to laugh when they refer to USA and boutiques springing up. My experience is that its very sales orientated and that one person sells trauma cover, another specialises in IP etc and to specialised markets. We dont have the population base for that comparison, nor do I feel its a good manner in which to provide solutions to needs.
[i]Mr Prendeville questioned the legitimacy of the reasoning put forward by various industry stakeholders for why such revenue should be banned, but added that such a ban remains a likelihood for business owners to consider.[/i] Really? You question the legitimacy? Wow.
Grandfathered revenue that may only last 2 year at 2 times – bargain! Lets face it, its worthless or very close to worthless, not worth anywhere near 2 times!
Just take someones income away. Criminal act! All you have to do is impose service conditions to these Grandfathered contracts SIMPLE —-
Yeah I think grandfathered income is a joke however if they made everything subject to opt-in, different story. Easy form to sign with the clients who get serviced and those who dont just stop paying.
Soon you won’t have to provide an opt-in. Soon you won’t be able to charge until you’ve done the review…full stop. See how many of your clients come back in for a review then. The whole method of charging is going to change and most advisers and firms have their head firmly buried in the sand hoping everything stays the same.
The government cannot interfere with you asking a client for an agreed fee to be paid in monthly instalments, as long as that fee negotiated every 12 months.
I bet they can when they ask you to prove those fees being deducted from super were purely in relation to advice on their super…and not your holistic advice fee.
As they should, anyone who charges solely from super without it being 100% super advice is breaching the sole purpose test.
Its not hard signing new agreements with clients every 12 months if you actively service them and add value. Its just a shame many planners dont, hence they fight tooth and nail to maintain grandfathering. Self-preservation at its finest.
Its a shame Steven spends more time speaking to the media than to potential buyers and sellers