Will grandfathering make advisers complacent?
Grandfathering provisions in the Future of Financial Advice (FOFA) legislation risk encouraging complacency in the advice industry, according to van Eyk Advice national practice manager Tony Zulli.
Furthermore, he said advice businesses were in danger of wasting 2013 instead of preparing themselves for industry and regulatory change.
"Receiving passive, commission-based revenue streams from large client bases is still the dominant business model in the advice industry, and with grandfathering it will be common for some years to come," Zulli said.
"The risk is that it will make advice businesses complacent and they won't use this window of opportunity to adapt their business models, or they will leave it too late."
With only six months left until FOFA's start date, Zulli warned that many businesses had not fully costed the impact of the reforms.
Many businesses were also ill-prepared for competition coming from industry super funds, which would be ramping up their efforts to poach clients.
"Advisers may find an increasing number of their grandfathered clients, particularly the higher balance ones, being picked off by competitors," Zulli said.
However, van Eyk Advice - the financial services licensee arm of van Eyk Research - believes the best interest test will demand greater transparency and will put the spotlight on quality and value of advice.
"FOFA's best interest test will be a key driver of recommended investment strategies and will require a much higher level of analysis, supporting documentation and education material to be used in the advice model," Zulli added.
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