“So you can’t expect to have a huge degree of interest in a sector which is going through reform. That’s the biggest anchor at the moment in regards to not just our share price, but others in our sector.”
Not all the FoFA reform is positive for the industry, even if Butterworth thinks DKN is well placed to weather it.
“Let’s talk about platform rebates to the practices as a classic example,” he says.
“Now, DKN does not get a rebate – let’s make that clear. The revenue we make from our packaging of the platform through BT is not affected by these reforms.
“We do pay a small rebate to practices, but other providers of platforms pay significant rebates to practices. If these rebates are turned off, for our guys, because we don’t pay much out – we price the product low and therefore have low rebates – the cashflow impact is marginal.
“If you’re using a more expensive platform and you’re getting significant cashflow in your business and that is turned off, and they’ve built their business around that rebate, as opposed to revenue from their clients, those firms are going to go through some significant stress.
“My assumption – and I could be wrong – is that as the platform provider is providing that big rebate, if I was the adviser I’d be saying you’re no longer paying me 40 bps or 30 bps as a rebate, you’re going to reduce the cost of your platform so I can charge the client, so it’s a straight replacement [of revenue].
“But can you imagine that conversation with all your clients? ‘The platform has reduced its fee and therefore I’m increasing mine’. As a client, I’d say, ‘Why?’ They may have a better sales story than that, but you could assume that you may not get 50 per cent converted.
“The value impact to these practices could be quite significant. Those who have their heads in the sand and think it’s not going to change … our view is it may not get legislated now, it may happen again in three years’ time, or the industry may enforce it, but regardless of when it’s going to happen – because it most likely will at some point – you must start transitioning our business now, while you’ve still got time to do that.”
One of the FoFA proposals Butterworth opposes vehemently is the opt-in requirement.
“That’s one of the ones [where] we have real difficulty agreeing at all with anything that’s been proposed in that space,” he says.
“It’s more the administration that goes with that. It’s [a] philosophical [objection], yes, but it’s also the administration: how do you track it? How do you enforce it? It’s a real issue.”
Butterworth says the client is going to engage in an ongoing relationship with a planner, on a fee-for-service basis, with the fee agreed between planner and client and paid by the client to the planner, and the client can elect to terminate that relationship at any time.
“Leave it at that,” he says.
“ To say that client now has to opt-in, what’s your timeframe of having that client elect to opt in? Retirees are away, they’re on holiday, they’re interstate … does it have to be within three months of the anniversary date? Who tracks that? Who enforces it? All those types of things.
“Yes, it could be there’s a lot of lazy revenue generated by advisers through the old trail system, but be that as it may, moving forward it’s fee for service and fiduciary obligation.
“To legislate it I think is overkill.”
Name: Phil Butterworth
Position: Chief executive, DKN FinancialGroup
Years in financial planning/financial services: 17
Qualifications: Bachelor of Commerce
Relevant industry background and experience: Responsible for delivering shareholder returns through driving the strategic direction, operations and culture of DKN. Industry experience spans distribution, platform development, dealer services, business acquisition and implementation. He is a member of the Financial Services Council Advice Board Committee
