How to avoid becoming a victim of FOFA

After much debate, FOFA is set to hit the beach in a matter of days on 1 July. D-Day is imminent – and a survival strategy for planners is now absolutely imperative, writes Anne Fuchs. 

In the opening moments of Saving Private Ryan, the Allied troops are on boats off the coast of Normandy and can see the rapidly approaching shoreline where the enemy awaits. Fast-forward 70 years, and imagine the shoreline is the Future of Financial Advice (FOFA) reforms and it’s financial planners and advisers sitting on the boats. 

FOFA is an unavoidable, unprecedented attack on retail financial advice businesses, and advisers now have to decide how to survive the onslaught. Many have already recognised FOFA’s inevitability. 

Some have responded by metaphorically vomiting over the side of the boat. They have seen it, they know they can’t cope, they’ve shut down psychologically and have given up. 

Then there are those who have decided to survive but don’t have a strategy; they are just holding on to the sides of the boat, hoping for the best; hoping to make it through the battle.  

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And then there are those who don’t understand the new world order. Their businesses have survived because they have had a protective buffer of recurring income that hasn’t forced them to do any work around getting their value proposition and their business model right.  

In talking to advisers, I’ve found most still have no post-FoFA survival strategy – and that’s scary because the impact of scaled advice is profound. 

The Government’s intent 

The Government wants most consumers to go to banks and industry funds for simple financial advice. That’s intentional. It doesn’t want people with simple advice needs to go to a retail planner. 

It wants to shrink one segment of the market and grow another. Unfortunately, retail advisers are in the segment of the market that legislation is shrinking. Bottom line – if you’re now providing simple advice to Mum and Dad Australia, your business model is under attack. How are you going to survive?  

Surviving FOFA 

Your dealer group’s value proposition holds the key. It will dictate whether you can become a niche adviser working with accountants to reinforce your value proposition and ensure client referrals, or whether you are going to provide scaled advice to high volumes of clients.   

If you decide to become a niche player, you will have to become like a medical specialist on Macquarie Street, Sydney, winning referral business because you are highly specialised.  

If you are going to provide scaled advice, you are going to have to become a general practitioner (GP). 

However, if you want to be a GP in a little suburban back street servicing large numbers of people, you need to be aware that GP super clinics in the form of scaled advice offerings in banks and industry funds are being set up all around you – and you are going to struggle to survive unless, like the super clinic, you start bulk billing.   

Either way, your success will depend on how well your dealer group supports you.

To provide scaled advice, for example, your dealer group will have to provide strong lead generation, simple, robust corporate governance and high professional standards so that you can physically service a lot of people. 

To survive FOFA you have to look honestly at the number of new clients you have seen over the last one, three and five years and ask yourself what your profit and loss statement would look like if the recurring revenue wasn’t there, or it was reduced.  

Decisions, decisions 

If your current business model is not sustainable without the same amount of recurring income, you need to decide whether you are going to be a niche player or a general practitioner.

Are you going to be in the business of giving complex advice or simple advice? What does your ideal client look like? 

After you go through this decision-making process, discovering where you see yourself fitting in terms of the marketplace, you will need to assess whether or not your dealer group can appropriately support you in that segment of the market.  

Is your current dealer group right for you? 

Dealer groups are going to have to go through a similar discovery process and position themselves as homes for either niche players or scaled advisers.

The question you need to ask is, who is your dealer group? Do they really understand your challenges? What can they offer you in terms of support? 

Do they have the advice templates and workflow management systems to support an efficient, compliant back office that will allow you to deliver advice in a very cost-effective way?

Do they have a lead generation service?  

Getting on with business 

As advisers approach the FOFA shoreline, some will be unnecessarily gunned down, simply because they thought that if they just ran their hardest, they could escape it. They can’t – the impact of FOFA is too profound.  

And a change of Government is unlikely to change that. The only piece of FOFA the Coalition has talked about unraveling is ‘opt-in’. 

While there is a view that opt-in is the biggest killer of the retail advice industry, in fact, to paraphrase a quote from Saving Private Ryan, it is only one needle in a stack of needles – because conflicted remuneration, annual fee disclosure and scaled advice are collectively driving the structural changes that will dramatically impact on your ability to generate an income and build a sustainable, profitable practice. 

If you are sitting on the boat heading for the FOFA shoreline hoping for a last minute reprieve, hoping that the boat will turn around – it’s simply not going to happen. 

Nobody wants to be a victim. If you don’t want to be a FOFA victim, make a strong decision now about what kind of business you want to be post-FOFA and act on it – now. 

Anne Fuchs is the founder of licensee advisory firm Pinnacle Practice.