Count revises business in response to FoFA

Andrew Gale, managing director and chief executive of Count Financial, says the company will “become the IDPS operator and RSE in respect of our strategic platform offerings” in response to the Future of Financial Advice (FoFA) decision to ban volume related payments.

The accountant-based dealer group’s response highlights the magnitude of the task of not only running a business more efficiently to satisfy FoFA, but also revising a business model to ensure survival.

The transition to being the investor-directed portfolio services (IDPS) operator and responsible superannuation entity (RSE) will result in Count “meeting governance, risk management, ‘fit and proper’ and capital requirements”.

Count focused on volume related payments “as this matter’s obviously of the greatest significance in terms of Count and our particular business model”, Gale said.

Gale said the Government is considering two models of volume related payments:

• The purist model – all volume related payments would be prohibited irrespective of whether or not they potentially conflict advice;
• The pragmatic model – volume related payments, which have the potential to conflict advice would be prohibited but volume related payments that do not conflict advice and confer scale benefits to clients would be permitted.
  

He believes allowing the purist model will have the possible implication of “arguably favouring the vertically integrated organisations”.

“Why? Because such organisations have exercised discretion as to where they realise margin in the value chain, whether it’s in the advice area, platform or funds management,” he said.

“For large licensees, such as Count and others similar to ourselves, [the purist model] can transform their business model but it will be challenging for the small to mid-sized licensees to pursue those particular options.”

Gale said a possible consequence would be consolidation in the industry, especially in the non-aligned licensee sector.

“And a potential consequence of that is the diminution in the overall degree in independent advice in the Australian market. From this perspective, there are some issues that we’re heading down that path,” he said.

The FoFA reforms are set to ban volume related payments from financial services companies to dealer groups, advisers and authorised representatives however, the Government did not address the issue of platforms accepting rebates from fund mangers and therefore will remain unchanged.

“So that’s a variation of the purist model,” Gale said.

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“We’ve been thinking about these issues now for 12 months and there’s a range of possible options in terms of how one might respond to those changes, especially in relation to volume payments.

“The key criteria that we’ve utilised is first, ensuring Count can receive margin to fund the valuable services that we provide.

“Secondly, we’ve always prided ourselves on having a strong framework in place in managing conflicts of interest, and indeed our current business model, including through platforms, has been designed to absolutely minimise conflicts of interest.

“We don’t want to be leaving ourselves exposed to any further tightening up by the Government or the regulator. We just want to have a strong, robust solution out there in the marketplace.

“In that process, we will source platform infrastructure and administration services from a couple of key platform partners.”

Count will replace its current arrangement with platform providers, subject to grandfathering provisions, which remain “an open question”.

“We’ve had discussions with two of our strategic platform partners and given the developments, they agree that this is a robust response and that they will act in a manner totally consistent and supportive of our intended business model and the transformation of that model to us [becoming] the IDPS operator and the RSE,” Gale said.

“The reality is, in terms of future strategic platform offerings, we will need to do that with a limited number of organisations.

“We certainly wouldn’t do that with just one organisation because of our positioning of being independent and non-aligned.

“But it may mean that some of our providers move into a more grandfathering-type arrangement.

“We’re still working on the detail but by definition, I think there’s going to be a narrowing of strategic platforms.

“There is now a much greater degree around the certainty of the Future of Financial Advice reforms and with this much change going on, having that high degree of certainty is really important.”