FOFA giving financial planners the urge to merge

Mike Taylor writes that FOFA is already beginning to change the shape and texture of the financial planning industry – something likely to be reflected in a rash of announcements around mergers and acquisitions.

When Money Management later this year publishes its traditional ‘Top 100 Dealer Groups’ survey, it is likely to reflect the start of substantial change evolving out of the legislative and regulatory requirements of Future of Financial Advice (FOFA).

While in this week’s edition of Money Management we have carried stories about the increased compliance burden resulting from FOFA, the greater impact will be reflected in the size and shape of the industry by the time we reach the end of 2013.

That size and shape will be significantly altered over coming months as individual financial planning practices and dealer groups seek to develop the appropriate commercial models and scale to deal appropriately with their FOFA commitments.

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Thus, over coming weeks, Money Management will be announcing a number of commercial agreements and mergers which reflect the desire of both small financial planning practices and smaller dealer groups to ensure they have the ability to handle the new regulatory environment.

This publication also expects to announce a number of new offerings from the major platform providers aimed at assisting planners to deal with the new regulatory environment, not the least of which will be solutions for dealing with fee disclosure and opt-in.

It is in these circumstances that dealer group services offerings such as those being provided by BT are likely to gain serious traction – and to further cloud the issue of whether particular advisers are aligned or non-aligned.

However, no one will blame advisers for embracing the most cost-effective options in dealing with the FOFA challenges, even if those options give the appearance of aligning them with the Commonwealth Bank/Colonial First State or Westpac/BT.

It is hard to ignore suggestions by people such as Madison Financial Group head of compliance, Cheyenne Walker, that at the very least, FOFA may give rise to an element of double-handling on the part of advisers as they seek to divide their clients between those on the books pre-FOFA and those on the books post-FOFA.

Indeed, Walker is probably right in suggesting that compliance costs, at least initially, are destined to rise significantly.

FOFA’s impact on the shape and texture of the financial planning industry is not without precedent in the Australian financial services industry, with a tighter regulatory approach being one of the major drivers for consolidation in the superannuation industry.

The number of funds in the superannuation industry declined significantly between 2006 and 2010 in large part because of regulatory changes and the resultant costs of compliance. It ought also to be remembered that the Government’s Stronger Super policy is expected to generate further consolidation.

As Walker last week pointed out, there remain many unanswered questions with respect to FOFA, including those around the issue of the grandfathering of platform payments. From the point of view of the Australian Securities and Investments Commission (ASIC), translating the FOFA legislation into regulation remains a work in progress.

But the bottom line for all financial advisers and dealer groups is that they cannot afford not act in the expectation of a change of Government at the next Federal election.

What they need to remember is that more than 80 per cent of the FOFA legislation actually carries substantial bi-partisan support.

Further, the first opinion polls issued in 2013 suggest the gap has closed between the Government and the Coalition and that the election of a Coalition Government later this year, while likely, is not as certain as it appeared six months ago.

So the challenge for financial planning practices and dealer groups over the next nine months will be addressing the realities of FOFA as they know it – and in many instances that will necessitate mergers and acquisitions.

Change resulting from FOFA is inevitable.