Licensees are reporting vastly different recruitment experiences in the first month of the Future of Financial Advice reforms with some recording high levels of query from advisers looking to switch while others claim it is now harder than ever to move.

Last week, Futuro managing director Dennis Bashford said the dealer group was experiencing a significant spike in enquiries from planners. At lease ten are expected to join in the next month.

Premium Wealth Management CEO Paul Harding-Davis agreed that there has been an unexpected level of query, adding that in many cases advisers felt compelled to at least test the waters.

“We do keep hearing stories of advisers who are only just getting training and guidance on FoFA now, and or inadequate support,” he told Professional Planner. “No doubt they are concerned, if not frustrated and alarmed.”

FoginsertThe Encore Group national practice development manager Matt Fogarty (right) said there had been a lot of talk in the recruitment market in April, May and June with still plenty of activity in the sector.

He expects a period of consolidation ahead of some “big plays” next year.

Commission conundrum

However some advisers face a different set of difficulties with one expert claiming that those holding on to legacy books and resisting a fee-for-service model could be locked into their licensee’s dealership for life.

M&A Consultancy firm, Radar Results, has received advice that some authorised representatives who wish to sell their commission-based financial planning investment clients outside their existing dealership may lose their commission-based revenue.

“Even if that AR wants to move from one licensee to another solely to receive a lower dealer-service-fee arrangement or some other benefit, then the grandfathering exemption will disappear,” said Radar Results principal John Birt.

“After moving to a new licensee, the clients will be treated as ‘new clients’ with a Financial Disclosure Statement (FDS) required within one year and opt-in will start in the second year.”

Asked for a legal view, Claire Wivell Plater, managing director of The Fold Legal, said commission on investment amounts are conflicted remuneration and, for grandfathering to apply, the arrangements under which the payments are made must have been in place as at June 30 2013.

“Where an adviser practice is being paid grandfathered commissions, these commissions are paid under a ‘distribution’ agreement between their current licensee and the product provider and then passed through to the adviser pursuant to the authorised representative agreement between the licensee and the adviser,” she said.

“When advisers move to a new licensee, a new arrangement needs to be created for the licensee to pass remuneration received from product providers for business written by that adviser to the adviser.”

Grandfathering: unintended consequences?

After July 1 2013, such new arrangements are not grandfathered, so the new licensee cannot receive or pass on the commissions to the adviser.