Print Post Approved PP255003/00299
Vol.25 No.46 | December 1, 2011 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
FOFA TRANCHE 2: Page 5 | POPULATION – IT’S A BIG WORLD: Page 20
Banks to carry BOLR can as FOFA drives out planners By Mike Taylor
Chart:
BUYER of Last Resort (BOLR) arrangements entered into decades ago are returning to haunt some of the major financial services institutions as growing numbers of older financial planners look to exit the industry in the face of Future of Financial Advice (FOFA) changes. New research released by Wealth Insights has revealed the degree to which lucrative BOLR arrangements entered into during the heyday of the financial planning industry will now impose themselves on the bottom line of some of the banks and institutions such as AMP and AXA. Giving an indicator of the likely impact of those arrangements, the Wealth Insights research conducted over the past six months reveals that 15 per cent of advisers whose dealer groups are owned by the banks or AMP/AXA are likely to exercise their BOLR if the FOFA changes come into effect. The same research reveals that another
Impact of the reforms on Buyer of Last Resort
15%
34%
Likely
No BOLR Likelihood to exercise BOLR
28%
13%
Evaluating
15 per cent of advisers whose dealer groups are owned by the banks or AMP/AXA are likely to exercise their buyer of last resort if the proposed reforms come into effect. Another 13 per cent are weighing up their options.
38% Unlikely Source: Wealth Insights
13 per cent of those advisers are weighing up their options. Wealth Insights managing director Vanessa McMahon said the research was based on a sample of 434 randomly recruited advisers from bank dealer groups or AMP/AXA. She said the results of the research needed to be weighed against the scale of the planning practices involved and the multiples which had been agreed at the time that the
BOLR arrangements were originally struck. “When you weigh up those fundamentals, then you really do have to wonder about the strategic intent of the people within the banks and the major institutions who entered into the arrangements so many years ago,” McMahon said. She said that given the terms and conditions of the BOLR arrangements, it was still possible for some planners to exit their practices on a pay-out based on a calculation of
five times value. McMahon said she had been surprised by the number of planners surveyed by her company who had indicated their intention to exit the industry utilising the old BOLR arrangements on the basis of the Government’s FOFA changes. She said some had indicated a definite exit post-FOFA, while others were waiting to see the final shape of the Government’s changes. “Fifteen per cent say they are likely to exercise their BOLR if the reforms are passed through Parliament,” she said. “Another 13 per cent are waiting to see the detail of the reforms before they decide and are still evaluating their positions.” McMahon said this meant that potentially up to 28 per cent of planners might exit the industry, indicating that the actual number might easily reach 15 per cent. “That will certainly impact the bottom lines of some of the companies heavily exposed to legacy BOLR arrangements,” she said.
CFP students more than double in 2011 By Chris Kennedy THE number of students in Certified Financial Planner (CFP) aligned courses more than doubled in 2011 and the industry is now viewing graduate entrants more favourably, according to several experts. The Financial Planning Association’s (FPA’s) head of professionalism Deen Sanders said that possibly the most significant development of 2011 was the April launch of the FPA Education Council. In just six months it had already done some serious work in developing a harmonised curriculum for financial planning across all educational institutions, he said. That model curriculum, which will be going out to universities for consultation from December until February, will help institutions develop their programs and become Certified Financial Planner (CFP) approved institutions. Sanders said students in CFP-aligned programs had increased from around 2,000 in the 2010 intake to around 5,000 in 2011, partly due to more institutions offering
Deen Sanders such courses. AMP Horizons director Tim Steele said AMP would again be supporting its University Challenge in 2012. It is hoping to be able to start to embed the program in university courses to allow students to get academic credit for the work they undertake. The industry is starting to think about education to the point where it is seen as a business enabler as opposed to a compliance requirement, Steele said. “That’s a critical paradigm shift, that they can look at education as a way of enhancing their offering to clients, the advice they offer
clients, and supporting the growth of practices, as opposed to ‘I need to complete this training to meet my licensing obligations’,” he said. Griffith University Associate Professor (Finance) and member of the Financial Planning Academics Forum, Dr Mark Brimble, said it was good that the educators were now working together with the industry to progress the agenda – rather than just talking about it. The industry would increasingly be looking at degreequalified entrants as the norm because it realised it was good for their businesses, he said. In the past the industry tended to recruit graduates without specialised training, then send them off to do an extra diploma to get specialised qualifications, but it is now turning that corner, Brimble said. “The industry is realising the value of those students in terms of their ability to work as trainees from day one,” he said. Financial adviser and director at Synchron-aligned pracContinued on page 3
YEAR IN REVIEW
2011 rear view mirror THE past 12 months have seen the unfolding of major events in the financial services industry. Both tranches of the Future of Financial Advice legislation were tabled in the Parliament, while industry participants rush to meet the 1 July 2012 deadline. Financial planning industry bodies have decided to fight the negative sentiment towards financial planners by way of launching advertising campaigns and focusing on adviser education. There was quite a bit of activity on the mergers and acquisitions front, with the completion of the AMP/AXA merger, IOOF’s acquisition of dealer group DKN, and the Commonwealth Bank’s purchase of Count Financial, to name a few. Year 2011 has also seen significant executive movements, with some nailing big new roles, while others stayed in-between gigs. For more on events that shaped the financial services industry over the past year, turn to page 13.