Buyer of Last Resort (BOLR) arrangements entered into decades ago are returning to haunt some of the major financial services institutions as growing numbers of older financial planners look to exit the industry in the face of Future of Financial Advice (FOFA) changes.
New research released by Wealth Insights has revealed the degree to which lucrative BOLR arrangements entered into during the heyday of the financial planning industry will now impose themselves on the bottom line of some of the banks and institutions such as AMP and AXA.
Giving an indicator of the likely impact of those arrangements, the Wealth Insights research conducted over the past six months reveals that 15 per cent of financial advisers whose dealer groups are owned by the banks or AMP/AXA are likely to exercise their BOLR if the FOFA changes come into effect.
The same research reveals that another 13 per cent of those financial advisers are weighing up their options.
Wealth Insights managing director Vanessa McMahon said the research was based on a sample of 434 randomly recruited financial advisers from bank dealer groups or AMP/AXA.
She said the results of the research needed to be weighed against the scale of the financial planning practices involved and the multiples which had been agreed at the time that the BOLR arrangements were originally struck.
"When you weigh up those fundamentals, then you really do have to wonder about the strategic intent of the people within the banks and the major institutions who entered into the arrangements so many years ago," McMahon said.
She said that given the terms and conditions of the BOLR arrangements, it was still possible for some financial planners to exit their practices on a pay-out based on a calculation of five times value.
McMahon said she had been surprised by the number of financial planners surveyed by her company who had indicated their intention to exit the industry utilising the old BOLR arrangements on the basis of the Government’s FOFA changes.
She said some had indicated a definite exit post-FOFA, while others were waiting to see the final shape of the Government’s changes.
"Fifteen per cent say they are likely to exercise their BOLR if the reforms are passed through Parliament," she said. "Another 13 per cent are waiting to see the detail of the reforms before they decide and are still evaluating their positions."
McMahon said this meant that potentially up to 28 per cent of financial planners might exit the industry, indicating that the actual number might easily reach 15 per cent.
"That will certainly impact the bottom lines of some of the companies heavily exposed to legacy BOLR arrangements," she said.
