Grandfathering may divide advice industry
Grandfathering has the potential to split the ranks of financial planners into two camps as some wait for the Federal Government to provide clarification and relief while others actively future-proof their business and move away from grandfathered income.
Peloton Partners principal and director Rob Jones said there are many planners who are not impacted by grandfathering due to the way they charge for advice — but of those who are affected there appear to be two camps.
"In one camp there are advisers determined to retain existing rebate arrangements under the grandfathering provisions within the FOFA [Future of Financial Advice] legislation, and then there are others that are restructuring their pricing and transitioning any income that may come under the grandfathering definition in FOFA," Jones said.
"The challenge for planners who rely on grandfathered income is that at some stage non-advice costs will come under continued pressure and regardless of whether the arrangement is clear at legislative level, it may not be price competitive.
"Therefore, is grandfathering a major future problem for some groups where the action now is simply to defer the problem for another day? We think so."
Jones' colleague and co-principal and director at Peloton Partners David Murray said the change of Federal Government — which had promised to revisit the grandfathering provisions in relation to the Future of Financial Advice (FOFA) legislation — had not turned out to be the call to action that many were expecting.
"Good businesses do the right thing at the right time and we are seeing the onset of planners future-proofing their business without having being told to fix it," Murray said.
Michael Harrison, also with Peloton Partners, said the problem was that planners had begun to see grandfathered income as a remote problem distinct from their ongoing business.
"Planners affected by grandfathering are seeing this income as pigeon-holed and not a detriment for the future value of the business, because the general feeling is that if the income is grandfathered it is isolated and not a problem anymore," Harrison said.
"However someone will have to do the heavy lifting to fix this issue in their business, and new buyers will not overlook it but will apply risk weighting to any legacy books."
Connect Financial Services Brokers chief executive Paul Tynan said it would be better for the whole industry to move away from grandfathering.
"In five years time no-one should know what grandfathering is anymore, and while the lawyers have said it can be done it is still complex and licensees and product providers are still working it out," Tynan said.
"The slow step will be the large institutions who have orphan clients and keep the commission as the product provider, but consumers have become more educated and will move out over time."
AUTHOR
Jason Spits
Recommended for you
With Insignia shares up 32 per cent in the past month and the firm enacting a five-year growth plan, Morningstar believes the two recent acquisition bids from private equity firms demonstrate the company is undervalued.
As financial advisers enter the new year, Assured Support shares eight strategies to help advice businesses thrive through focused and consistent planning.
Insignia Financial has received a takeover bid from a second US firm, topping Bain Capital’s offer with a bid of $4.30 per share.
As the year comes to an end, Money Management takes a look at the biggest announcements that shocked the financial advice industry in 2024.
