Association of Financial Advisers chief executive Brad Fox told InvestorDaily recently that any grandfathered revenue an adviser has with their licensee may “not go with them” if they enter into a new licensing arrangement.
“My main message to the advice market would be: if you are thinking of joining a new licensee – particularly if you are an older business – then wait,” said Mr Fox.
The Financial Planning Association recently received assurances from Assistant Treasurer David Bradbury that the regulation would be changed after the election, and the federal Coalition has made similar assurances.
But Minter Ellison financial services partner Richard Batten says “there are options” for adviser movements between dealer groups and client books of sales – “even under the current grandfathering regulation”.
“I don’t believe it’s right to say that all recruitment of new advisers needs to be put on hold until the issue is resolved,” said Mr Batten.
For example, it may be possible to transfer “truly passive trail [commissions]”, he said.
“The key issue is whether any advice is influenced which would only be an issue when any advice is given after the transfer occurs,” said Mr Batten.
In addition, the regulations do discuss future “changes of party” under existing arrangements without jeopardising grandfathering, he said.
“While it may not be pretty, it is perfectly plausible for a new licensee to step into the shoes of an old licensee under a lateral adviser’s existing authorised representative agreement,” said Mr Batten.
As the Financial Planning Association has noted, not all advisers will be affected in the same way by the grandfathering regulations, and each individual situation must be assessed on its own merits.
“But the general proposition is that the current regulation can be made to work, even if it is not ideal,” Mr Batten said.
Minter Ellison mergers and acquisitions partner Chris Brown said deals between advisers in different dealer groups will probably have to be structured differently “until the regulations are sorted out”.
“There is also likely to be an impact on values until the problem is fixed, reflecting a notional higher risk for the buyer,” said Mr Brown.
“But even under the existing rules, if the new licensee’s product issuer agreements stack up and support grandfathering, then there is no reason why the book won’t benefit from grandfathering,” he added.
