Valuations head down on FOFA worries

The policy uncertainty surrounding the Federal Government’s proposed Future of Financial Advice changes appear to have contributed to wiping up to 15 per cent off the value of Australian financial planning businesses, including major dealer groups.

That is the bottom line of an analysis conducted by Money Management of the decline in share prices for the nation’s major publicly listed dealer groups. Further, the decline is seen as being pivotal to IOOF’s $88 million bid for DKN Financial.

The question of whether the IOOF bid for DKN represented “fair value” for shareholders was raised by the chief executive of Count Financial Limited, Andrew Gale (pictured), who suggested the ongoing uncertainty around FOFA was serving to undermine the value of financial planning related businesses.

This view was subsequently shared by Association of Financial Advisers (AFA) chief executive Richard Klipin who, while declining to specifically comment on the value of the IOOF bid, said he believed the entrenched positions of some of those participating in the FOFA debate had served to erode confidence in the value of many businesses.

The Money Management analysis of the share prices of the major publicly listed dealer groups – DKN Financial, Count Financial and Plan B – reveals a remarkably similar picture: that of a strong recovery in fortunes through the closing months of 2009, followed by a significant downward trend from about the time the recommendations of the Ripoll Inquiry began to be translated into the proposed FOFA changes.

What is more, the declines in share values occurred despite Count, DKN and Plan B having well-established fee-for-service business models in place.

Klipin pointed to the fact that the proposed FOFA changes had been a key issue for financial planners for most of the past 18 months and that, while the process was drawing to a close, it seemed likely the Assistant Treasurer, Bill Shorten, would not be releasing draft legislation until well into the new financial year.

“There is still uncertainty around a number of decisions and the Government’s ultimate direction and that will inevitably impact perceptions of what a business is worth,” he said.

IOOF chief executive, Chris Kelaher has also acknowledged the manner in which the FOFA changes were generating uncertainty and claimed many of the proposals would only serve to advance the interests of the industry superannuation funds.

The group general manager of Professional Investment Holdings, Grahame Evans, earlier this month warned there was a danger that the FOFA proposals, in their current form, would lead to the re-emergence of a “quasi-tied agency structure”.