A spike in the sale of financial planning practices is tipped following the clarification of grandfathering provisions under the Future of Financial Advice (FoFA) laws, according to Paul Tynan, chief executive officer of Connect Financial Service Brokers.
“I’ve had a spike of people selling, I’ve never had more sellers than buyers, but there’s a few people now looking at it,” Tynan says.
“It’s good. Common sense has prevailed, it’s going to be good for the industry. We’ve got a whole generation of baby boomer [financial planning] business owners coming up to retirement, and that’s why we’ve had a lack of sales, purely because of the uncertainty around grandfathering.
“There’s more conversation going on than ever in my 30 year industry experience.”
Tynan believes the level of activity will be most pronounced within the institutional space, as practices take advantage of the increased certainty and act on plans to move outside.
“Over the last two months, there’s been an increase in the number of calls I’ve received from inside the institutions saying they don’t like that world any more, they want to move on,” he says.
These enquiries are predominantly from employed advisers, who Tynan says are often looking to buy a small book of clients ahead of setting up their own operation.
“I know a number that are planning, up to 12 months in advance, to leave…they’ve had enough,” he says.
Even though they are often being paid substantial salaries, Tynan says many are “prepared to take a cut in remuneration because they want to be financial planners working in the best interests of clients.”
John Birt, principal of Radar Results, also sees an upsurge in trading of financial planning practices.
“We’ve had a lot of transactions since government announced things were okay last December,” he says.
“Over the last 10 months, there have been so many practices out there that want to buy businesses. There’s a huge appetite out there. Interest rates are low; I can see a lot of transactions being done in 2015.”
Birt believes this will predominantly be among the non-aligned and independent groups.
Within the larger institutionally owned dealer groups, Birt says there will be continuing growth in the sale of “orphans” – books of C and D clients that are packaged up and sold internally.
He says one of the big five financial institutions’ dealer groups has as many as 600,000 orphans it will sell internally.
Déjà vu…again
Speaking more broadly about Tuesday’s announcement of the deal between the Government and Opposition, Birt says: “It’s just déjà vu from 12 months ago, the Government has said ‘we’re going to allow [grandfathering], which they have to.”
Birt points to three reasons for this.
“First, it’s anticompetitive legislation,” he says.
“Second, it’s stated under common law that if one person sells a benefit and another person buys that benefit, then that benefit has to be transferred. We’re talking about recurring revenue being sold, so by law that has to be sold.”
Thirdly, he says “there’s also the Trade Practices Act”.
“I was very confident, some weren’t,” he says.
When news of the FoFA regulation disallowance emerged last Wednesday, Birt says some practice owners “were horrified, were really scared”.
He says some clients had placed millions of dollars in deals on hold due to the uncertainty over grandfathering provisions, but hopes he can turn some of these around following Tuesday’s announcement.
