The magnitude of the challenges confronting financial planning groups has been laid bare by a document prepared by CountPlus as part of its acquisition of Count Financial, revealing a potential revenue decease of as much as 60 per cent.
The CountPlus document, prepared for an extraordinary general meeting (EGM) to ratify acquiring Count Financial from the Commonwealth Bank, has made clear the dramatic declines in revenue which have flowed from Government policy and regulatory changes, including the Future of Financial Advice (FoFA) changes and the Royal Commission.
The document has also foreshadowed the likelihood that some firms working under the Count Financial license may opt not to move to CountPlus.
It said that legacy revenue streams associated with Count’s platform contracts included “licensee adviser fees (which ceased from 1 March, 2019) and platform rebates (which are decreasing based on grandfathering run-out)”.
“As such, while Count (and therefore the Group from Completion) may benefit from legacy income until 1 January 2021 (eg platform rebates and investment trail commissions), Count is expected to experience an approximate 60 per cent revenue decrease in this regard once all expected reforms are implemented,” the document said.
It said that there was accordingly a risk that the loss of the licensee advice fees and grandfathered commissions would have a material impact on Count’s revenue, and therefore profitability.
“There is also a risk that platform providers may seek to terminate their arrangements if they do not consider the arrangements to be in their interest once the revenue arrangements change,” the CountPlus document said.
It said that, historically, member firm attrition had been mitigated under the current model which had been characterised by selective discounts to fees charged by Count to members of up to 45 per cent and discounted provided to members on the recovery of various charges by Count.
“Due to changes in revenue, Count must transition to a new revenue model which covers costs and delivers a return to Count as member firm licensor,” the document said.
“It is expected that there will be a repricing of licensor services in the market generally. As a result of the envisaged market re-pricing, there is a risk that count’s member firms may terminate their arrangements with Count if they do not support the new pricing model. This may have a material impact on Count’s revenue and future profitability,” it said.