FOFA forces financial planners into a costly holding pattern

Many financial planning businesses have had to put their growth plans and other projects on hold while preparing for FOFA. Milana Pokrajac looks at opportunities lost.

While bank-owned dealer groups were involved in what was effectively deemed the ‘financial planning turf war’, mid-sized practices were quietly chipping away at the Future of Financial Advice (FOFA) reforms and making sure they remained compliant (and profitable) after the 1 July start date. 

However, the preparation over the three years since the reforms were announced took their toll, with many of those businesses having to put serious brakes on their growth plans and other projects they would otherwise have launched. 

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The Money Management/DEXX&R Top 100 Dealer Groups table points to several independent mid-tier dealer groups that did not make big jumps in adviser numbers, unlike their institutionally owned counterparts. 

For a boutique, preparing for something like FOFA would take much of the spare resources and leave little time or money for anything else, let alone growth. 

“Running around and recruiting just for the sake of recruiting is not the answer,” said Gold Financial managing director Bernie Toohey. 

Gold Financial has 61 advisers in its network this year, only one up from 2012. The numbers tell a similar story for some of the other mid-sized dealer groups, such as Capstone Financial Planning, FYG Planners and Integrity Financial Planners, among others. 

“FOFA has been very time consuming. You’ve got to work closely with your software providers, you’ve got to get your templates up to scratch, you’ve got to educate your existing authorised representatives for the whole new world – fee disclosure statements, best interest duties – it’s changing times,” Toohey said. 

Growth, however, isn’t the only project financial planning businesses have put on hold. 

“I put a proposal to the board that I wanted to put together a pro bono program for us,” said Premium Wealth Management managing director Paul Harding-Davis. “I’m going to be a year behind schedule on getting that up.” 

Speaking at a panel discussion at a recent breakfast function hosted by the Financial Planning Association and Money Management, Harding-Davis said launching projects such as pro bono advice was one of the best ways to demonstrate the value of advice. 

However, for the relatively lean team that Premium is, changing processes in the lead-up to FOFA was not convenient in that regard. 

Even some of the larger dealer groups have had to switch to ‘slow’ mode. Synchron is currently the biggest non-institutionally aligned dealer group in the country and has grown quite a bit in the last year. 

Being a risk-focused practice, the lead-up to FOFA was not as stressful as it might have been for investment-focused practices, said Synchron director Don Trapnell. 

“Clearly the preparation for FOFA did mean that some marketing issues and some other projects had to be put on ‘go-slow’,” Trapnell said. 

The biggest challenge to the smaller boutique licensees, in Trapnell’s view, is not having the critical mass to afford to provide the services the advisers need. 

“If you have below 100 advisers you are having issues,” he said.

“Your professional indemnity insurance premium becomes a higher proportion of your overall cost; the costs of providing and maintaining commission distribution and fee distribution systems comes at a higher cost.” 

However, getting over that 100 mark – or growing adviser numbers in general – is not such a simple task, especially when the regulator has its eye on rapidly-growing financial planning businesses. 

Speaking at the Association of Financial Advisers (AFA) National Conference last year, the then Australian Securities and Investments Commission (ASIC) Commissioner Peter Kell said rapid growth could result in inadequate or poor-quality compliance resources and inadequate dispute resolution processes across the business. 

“We’ve seen a number of licensees grow rapidly via acquiring financial advice businesses, and there are some specific concerns we have with the operation of the one-size-fits-all approach and [with] different advisers operating in that sort of model,” Kell said. 

For Toohey, having the staffing resources to be able to provide stringent monitoring and adviser supervision is the biggest hurdle. 

Gold Financial has two practice development/compliance managers working closely with the financial planning practices operating under Gold’s licence. 

“When you’ve got 25 practices per development manager, they get a pretty good handle on the practices, they can monitor them well and make sure that they’re doing the right thing, but I don’t know how some of these firms with 250-300 advisers are able to do that – and that’s probably been a problem with a couple of them out there,” Toohey said. 

In fact, a number of groups have had their licences cancelled by ASIC in the last few months, many of them due to compliance issues and poor adviser supervision. 

AAA Financial Intelligence and Perth-based Addwealth are just two such examples the industry has witnessed since January. 

Others are getting rid of their Australian Financial Services Licences (AFSL) altogether and folding under larger dealer groups. 

Queensland-based WB Financial folded its AFSL and sought shelter under Commonwealth Bank-owned Financial Wisdom. 

Troy Edmondson, who runs Queensland-based boutique financial planning practice Business & Estate Planning Specialists, announced he too would be handing in his AFSL and joining TAL-owned Affinia.  

He cited compliance obligations as the reason for this move.  

“After holding the licence for a number of years, the compliance obligations were taking me away from running a specialist insurance and estate planning practice; I want more time with my clients, not less,” Edmondson said. 

Industry consolidation might have reached its peak, but independently-owned AFSLs are still disappearing, which could be detrimental to the financial planning sector. 

“It is important that we do have a variety of types of licensees and that it’s not a cookie-cutter approach as to what a licensee should look like,” Trapnell said. 

“I don’t think it’s in our industry’s interest to have distribution polarised through institutions,” he added. 

“Unfortunately, that’s where we could head if independently-owned licensees don’t step up to the mark – and that means actively marketing themselves, actively presenting themselves as a viable alternative.”

Please contact Money Management on 1300 360 126 to purchase the extended Top 100 Dealer Group table.




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