Life insurance multiples are down 8 per cent and revenue multiples on risk clients over the age of 55 have fallen significantly as advisers exit the industry in the wake of the royal commission and proposed FASEA education requirements.
The latest RADAR practice valuation results for August 2018 show the multiple on grandfathered trail commission is down 25 per cent, life insurance multiples have fallen by 8 per cent and investment and superannuation clients over 80 years of age have plummeted 30 per cent.
Forte Asset Solutions managing director Steve Prendeville told ifa that there is no doubt there is downward pressure on values in the current climate.
“I am valuing grandfathered revenue at two times a 30 per cent devaluation,” he said. “While RC recommendations are non-binding, any government will go with populist sentiment and likely in act without due consideration of ramifications.”
According to Adviser Ratings, more than 7,000 planners have left the industry since 2015. UBS data suggests that 14,724 exited in last five years.
Earlier this year, an ifa reader poll indicated that the majority (76 per cent) of advisers plan to exit the industry once FASEA’s mandatory education standards are introduced.
The AIOFP is urging all advisers who have decided to leave the industry over LIF, grandfathered revenue and FASEA speculation to rethink their strategy.
“This evolving ‘stampede mentality’ is negatively disrupting the supply and demand dynamics of price with the only winners being the purchasers. It is such a tragedy that advisers are suffering capital losses on their life work when it may not be necessary,” the association’s executive director, Peter Johnston, said.
“The latest RADAR practice valuation results are showing that all practice types are suffering significant valuation reductions with blame levelled at ‘being spooked’ by the royal commission with grandfathered revenue, LIF, the proposed exam and FASEA speculation.”
Mr Johnston told ifa that the recent departure of the prime minister Malcolm Turnbull and relocating of the minister for financial services Kelly O’Dwyer is great news for the industry.
“We believe prime minister Turnbull had given Minister O’Dwyer permission to go in hard at our industry mistakenly believing the advisers were the only industry problem. The findings of the royal commission with institutional behaviour emphatically refutes this position,” he said.
“It should be emphasised and recognised that any royal commission recommendations are just that, they are not binding.”
The AIOFP spokesman reminded advisers that ASIC are the “police” of the industry and any decision on banning grandfathered revenue will need to legislated by the politicians due to the contractual obligations with the institutions.
“With a looming federal election and political parties not wanting to upset 25,000 advisers and 50,000 support staff, any move on grandfathered income is at least 18 months away,” Mr Johnston said.
“This now leaves a more sympathetic Morrison government that we believe will modify the FASEA model but they may not be there for very long, we will then have the architect of FOFA to deal with – a Shorten government.
“It is now time for the advice community to unite and put in place a new political strategy that protects its position in the industry. Clearly the past political regime of relying upon institutionally aligned associations to protect advisers has not worked and will never work due to the minority role advisers play in their membership and/or revenue source.”
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