The sudden disallowance of the Government’s Future of Financial Advisers (FoFA) amendments, will severely restrict adviser mobility for some time to come according to The Fold Legal (The Fold).
The Fold’s Managing Director, Claire Wivell Plater says with the disallowance, all amendments, including the Grandfathering amendments have been scrapped which means that advisers wanting to leave their existing licensees will lose grandfathered trail commissions and the market for portfolio sales remains at a standstill.
“I can’t see how advisers whose trail commissions are a significant part of their income could afford to wear that loss,” she says. “Which means they will be forced to stay where they are – even if they’re not being well supported by their licensee, or worse still are in dispute with them.
Ms Wivell Plater suggested two possible solutions – allowing the Grandfathering amendments back into the equation or appealing to the better nature of licensees to continue to pay trailing commissions to the adviser or advice business who earned them, even after they leave.
“The simplest solution is to allow the Grandfathering amendments to stay,” she says. “This is a win/win/win situation – it’s a win for advisers because they will not lose a revenue stream they earned under the prevailing rules of the day. It’s ultimately a win for licensees because it will allow each to compete on its own merits in the battle to attract advisers. It’s also a win for industry sustainability because it avoids wiping significant value off adviser businesses with the stroke of a parliamentary pen.”
An alternative solution, to appeal to licensees to pay trails to the adviser who earned them, regardless of which licensee licenses the adviser has possibilities, according to Ms Wivell Plater.
“It would make the licensee a good corporate citizen,” she says, “but that doesn’t necessarily mean it makes good commercial sense for them and there are significant risks for the adviser if the licensee strikes financial difficulties.”
Ms Wivell Plater says the situation that needs to be resolved quickly. “It’s hard to see how curtailing commercial activity in small business in this way can be in anyone’s interests,” she says.
