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Print Post Approved PP255003/00299
Vol.26 No.1 | January 19, 2012 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
FOFA PJC SUBMISSIONS: Page 4 | OUTLOOK FOR 2012: Page 12
Legal test looms if FOFA unamended By Mike Taylor THE underlying legality of the Government's Future of Financial Advice (FOFA) changes will almost certainly be tested in the event the legislation passes the Parliament without amendment. However, that legal test is likely to fall short of a High Court challenge. While some sections of the financial planning industry are continuing to call for a High Court challenge to the FOFA legislation, mainstream opinion is that the sector should await the findings of the Parliamentary Joint Committee (PJC) reviewing the legislation and any resultant amendments. Even if the PJC fails to deliver on the necessary amendments, Money Management understands the key financial planning organisations are unlikely to move to immediately support a High Court challenge and are more likely to at first obtain an opinion from high-
ranking legal counsel. Only some elements of the FOFA bills are regarded as capable of legal challenge, with the most obvious being those which serve to retrospectively alter the contractual arrangements between planners and their clients. While a survey conducted by Money Management in the middle of last year found respondents were strongly in favour of legally challenging the FOFA bills, there has been a general acknowledgement that the cost of pursuing such action is beyond the normal financial capacity of the organisations representing financial planners. The PJC has received more than 70 submissions regarding the FOFA bills, with the majority expressing concerns about key elements of the Government's legislation and recommending amendments to avoid unintended consequences. Those submissions have also served
Richard Klipin to underline the continuing deep divide between the retail segment of the financial services group and the industry funds and not-for-profit sector. The PJC will begin its public hearings in Sydney next week, with the key planning groups expected to press not only for amendments but for a delay in the implementation of the legislation to
Plenty of buyer demand as practice valuations hold up By Chris Kennedy THERE is plenty of demand in the market for quality financial planning businesses, as well as an increasing number of enquiries from those looking to sell in preparation for whatever Future of Financial Advice (FOFA) reforms may bring. The managing director of practice sales consultancy Kenyon Partners, Alan Kenyon, said his business is seeing strong buyer sentiment, particularly out of Queensland, with offers for some businesses of 3.3 times recurring revenue and up to six times EBIT (earnings before interest and tax). There are also more high quality businesses coming up for sale in the $2 million to $6 million range, he said. “We’re seeing demand from those wanting scale and other business opportunities,” he said. Lots of business owners are looking to diversify their revenue streams in the wake of the global financial crisis, he added. FOFA is having the greatest impact in the area of client book sales rather than practice sales, as practice owners look to prop up businesses prior to the introduc-
Alan Kenyon tion of new reforms and add revenue to the top line in the hopes that it will filter through to the bottom line. Sellers who would otherwise have been looking to come to market around the time of the GFC, but were able to defer, are gradually coming back to the market. However, they may still be waiting to see what the implications of FOFA will be, and are holding out for the right time to sell and looking at their succession options, he said. Kenyon said valuations hadn’t really declined since the GFC, in spite of FOFA. “The revenues took a hit – not the multiples,” he said. Plenty of businesses are still selling at or over three times recurring revenue, while client books are going for 2-2.75 times recurring revenue, he said.
Bendigo Wealth senior manager – Business Partners Program, Joshua Parisotto, said he is seeing a lot more enquiries at the moment, largely from those looking to prepare their businesses for sale once there is more certainty around FOFA. Most of the sales Bendigo Wealth has been involved in have been priced on EBIT rather than recurring revenue, and ranged from around four to six times, he said. Both Parisotto and Kenyon said the key factor in preparing a business for sale is improving the back-end efficiency, where the biggest and easiest gains can be made – for example, getting all the back office systems in alignment. General manager of independent dealer group Premium Wealth Management, Paul HardingDavis, said he also hadn’t noted any impact on prices due to FOFA. A number of practices may be coming up for sale where people are trying to get the transition done now, because they don’t want to go through another two years of change and regulation – although there may still be many adopting a ‘wait and see’ approach, he said.
allow for an orderly transition to the new regime. As well, the Association of Financial Advisers (AFA) has argued that the disjointed manner in which the legislation has been handled warrants the Treasury conducting a study of the impact of the legislation in terms of both the cost of advice and the quality that will be delivered. The AFA is also suggesting that a summit be convened involving all the relevant stakeholders to review the legislation and to deal with elements not covered by FOFA, including the taxdeductibility of advice and restricted use of the term ‘financial planner’. AFA chief executive Richard Klipin said his organisation believed such a summit was justified in circumstances where the process around the development of the FOFA bills had been poor and had given rise to a number of poor outcomes.
‘Phoenixing Bill’ too tame on planners? By Andrew Tsanadis
WHILE industry bodies support the Government’s proposed regulatory amendments to accelerate the wind-up of so-called ‘phoenix’ companies and claim the issue is not a major concern for financial planners, a senior lawyer has warned the Government move has not gone far enough in addressing financial planning issues. According to the parliamentary secretary to the Treasurer, David Bradbury, the practice known as ‘phoenix activity’ allows insolvent companies to simply set up a new business using a similar company name, sometimes located in the same premises and with the same staff and clients. The ‘Phoenixing Bill’, released for public consultation in December, will give the Australian Securities and Investments Commission (ASIC) the administrative power to wind up abandoned companies and to facilitate the online publication of notices and gazettes relating to external administrations, Treasury stated. Directors involved in these activities exploit the concept of limited liability in the Corporations
Act 2001, which stipulates that when a company fails, those behind the company, including directors and shareholders, are not liable for the company’s debts. Association of Financial Advisers chief executive Richard Klipin said such fraudulent activity is not something that he has come across among financial planning dealer groups. Although he believes the provisions in the current Act are sufficient to protect financial advisers, he supports the move to amend the Act. “Phoenix companies tend to leave a trail of devastation, from creditors to employees – [so] anything that goes to supporting the community is important,” he said. In conjunction with the ‘Phoenixing Bill’, the ‘Similar Names Bill’ was also released for consultation and is intended to impose personal liability upon directors for the debts of phoenix companies. Steve Harris, commercial general council with law firm Maurice Blackburn, argues that this bill is the real concern, as it does not go far enough in preventing phoenixing in the financial Continued on page 3