The cost of providing advice will lead to more clients being ‘orphaned’ over the next 12 months as advisers struggle to justify certain clients under new ongoing fee arrangements, according to Lifespan Financial Planning.
Eugene Ardino, Lifespan chief executive, said it had been driven by a multitude of factors which would see advisers orphan a lot of their clients.
“The reason it will come to a conclusion over the next 12 months is having to get clients to re-consent or to consent to their ongoing fee arrangements,” Ardino said.
“I’m seeing the volume of clients being orphaned is off the charts and the other thing is up until now, we’re not seeing advisers proactively orphan clients where it’s kind of happening as the situation arises.
“We haven’t seen trail and commission clients where there’s no longer anything being paid – we haven’t seen advisers proactively start orphaning those clients – that will be a massive thing that will happen over the next few years.”
Ardino said this would be a greater issue for consumers who were unable to generate enough revenue to justify giving them advice.
“A lot of these clients call up every so often and want help with things and it’s difficult to run an advisory group to have infrastructure in place to deal with them when there’s no income being generated,” Ardino said.
“Some of those clients will have been converted to fees [paying] but many of them haven’t because they’re too small and don’t have the capacity to pay a reasonable fee, so for me that’s the big thing that’s going to play out over the next year or so.
“Generally, it’s a high volume of clients that make up a very small amount of income and what will probably happen is you’ll look at the fee arrangements of everybody else and look at increasing fees.”
An exodus of advisers was expected this week and Ardino said Lifespan was expecting to lose 10 to 15 advisers.
“If you’re thinking about leaving this year and you don’t have a good reason to stick until the end of December if you get off the register before 30 June, you’re going to save yourself probably somewhere between $3,000 to $4,000 in the ASIC levy,” Ardino said.