Look beyond sign-on fees when switching
Financial advisers should consider the longer term when considering upfront cash offers to switch to large corporate licensees, according to Ann Fuchs, director of Pinnacle Practice and adviser/licensee matchmaking service My Dealer Group.
The opportunity to unlock some value in the business is appealing, but many offers out there at the moment represent "short-term gain, long-term pain", she said.
Taking a lump sum to join a large licensee could mean revenue streams are reduced or lost, she said.
"Many institutional licensees are offering upfront payments equal to three years' current volume bonus revenue. However, they are requiring advisers to sign on to an ongoing [Future of Financial Advice]-friendly remuneration model which does not include pre-FOFA remuneration such as volume bonuses, which advisers need to remember, are grandfathered," she said.
This means volume bonuses are sacrificed in exchange for the capital injection, which could be detrimental in the long term.
Advisers considering these offers may have considerable lifestyle costs such as raising a family, but because they will still be in the industry much longer than three years, the long-term benefits of retaining existing commission structures may work out substantially better in the longer term, Fuchs said.
Advisers need to also consider broader issues such as the new licensee's approved product list (APL), adviser support model and business philosophy, she said.
"Advisers should also consider their unique value proposition with clients, and whether moving to a new licensee will affect the way they do business with these clients or the markets they target," she said.
"Advisers should be asking themselves what they are trading in exchange for a cash payment."
AUTHOR
Staff Writer
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