Fee for service wins in long run

To achieve value for their businesses, planners should focus on generating fee-for-service income rather than trails, Perpetual Service Network general manager Anthony Hunt has told the Money Management/ AIC Financial Planning Solutions Summit.

To achieve value for their businesses, planners should focus on generating fee-for-service income rather than trails, Perpetual Service Network general manager Anthony Hunt has told the Money Management/ AIC Financial Planning Solutions Summit.

"The move that improves the value of a business is showing a reliable, recurring income stream," he says.

"The income stream has to be diversified and the information must be electroni-cally stored to show it is being managed."

The cross-selling potential and the ability to consolidate into other businesses are also considered when a buyer is valuing a planning business.

Hunt says the model for valuing an adviser's business is 0.5 times income for up-front fees and 1.5 times income for trails. But recurrent fees can attract up to three times value for more than three years. Profit weighting on average is given a 12-times income rating.

"We are in a world of diminishing margins with product managers dictating the terms of trade," Hunt says.

"The need is to move towards recurrent fees as administration becomes complex and expensive."

A buyer will look at the mix of fees-for-service and trail fees when deciding the value of a business, he says.

Creating more value for a businesses is expensive and time-consuming, especially if an adviser goes for in-house monitoring of administration.

If an adviser uses a master trust to outsource administration, the conditions of use are restrictive and it pushes the client relationship back to the manager. A wrap account outsources administration, is flexible and keeps the relationship with the adviser. It is the best option, Hunt says.

"A good wrap offers back and front-office support and that adds value to the ad-viser's business," he says.

There are electronic wraps that avoid the adviser such as the Your Prosperity electronic wrap.

"The market will show an interest in direct wrap services, but when the next correction comes, they will move away from these direct services," Hunt says.

The type of wrap an adviser should be looking for is one that creates a fee-for-service with the client which creates value for the adviser's business in the long term.

When choosing a wrap, advisers should look at what parts of their business it will run; who has control over the system; and it will help with decision mak-ing.

Hunt says the back-office support from some fund managers is causing Perpetual concern. The group recently surveyed the administration performance of fund man-agers which found 25 per cent of managers took three days to deal with unit pur-chases and the worst case was 17 days. Most took between two to six days to deal with the paperwork for a purchase, Hunt says. This year the average time has gone to four days.

With redemptions, 25 per cent took three days, but this too has risen to four days for the start of this year.

"We are going to make more and more noise about fund managers' administration this year," Hunt says.