My opposition to commission based financial advice is well known and firmly based on concern for the integrity of advice given to clients who expect professionalism and quality – particularly when it comes to choosing a superannuation fund.
However, I have always understood the attraction to planning businesses of developing an ongoing stream of commission-based income, which can be projected into the future and then converted to a present value lump sum when it comes time to sell the practice.
But as the world becomes more and more familiar with the pitfalls of inappropriate advice and sales practices across the whole spectrum of financial markets, and as regulators increasingly turn their attention to avoiding mishaps, so will prospective buyers of financial businesses increasingly look beyond revenue streams and start to question the quality of the revenues.
That is, they will ask themselves whether the revenues are sustainable in the light of current and future attitudes and regulations. In particular, will they survive increasing community and business focus on ethical behaviour?
Tomorrow’s buyers of planning businesses will be scanning for any possibility that the businesses may have contingent liabilities arising from potential legal actions. They will also look for evidence of a business model and processes that will be robust enough to meet the standards of the future.
Garry Weaven is chair of Industry Funds Management, an investment service provider to the superannuation industry; a director of Members Equity Bank, which is owned by 40 superannuation funds; and a director of Pacific Hydro.
