Two years before FOFA valuations impact

It could be another two years before the financial planning industry determines the full impact of the Future of Financial Advice (FOFA) changes on the value of individual businesses, with key buyers already steering clear of businesses based on commissions-related revenues.

That was the bottom-line assessment of a recent Money Management roundtable that considered the impacts of the Government’s FOFA proposals, with Colonial First State general manger of advice Marianne Perkovic (pictured) among those making it clear that the basis upon which planning businesses were being valued had changed.

“Being part of a large institution now we have lots of businesses coming to us to buy them,” she said.

However, Perkovic said there was caution with respect to businesses that had “revenue streams that heavily relied on commission and commission structures”.

The round-table agreed, however, that there were still financial planning businesses that demanded premium valuations because of their fee structures and their client relationships.

“There are still some businesses out there that we've had a look at that people would be happy to buy because you can see the clients have been engaged, they’ve got very good review processes and they have fee-for-service models,” Perkovic said.

However, Association of Financial Advisers chairman Brad Fox warned that the industry needed to take account of those planners who had spent many years in the industry and whose plans to exit had been delayed by the global financial crisis (GFC).

“We have to be very careful that those advisers that have spent 30 years building up their business, and were perhaps in their early sixties four years ago, and then wore the GFC,” he said.

Fox said the objectives contained in the FOFA proposals would make it very difficult for such people to exit their businesses.

“So we need to have an eye on that when we’re looking at how the valuations are affected by any of the legislation,” he said.