For all the controversy they attracted, the Future of Financial Advice (FoFA) reforms have caused minimal disruption to many financial planning businesses, according to David Allen, principal of Hobart firm Sky Advisers.
It is now a little over two years since FoFA was introduced on July 1, 2013. Despite a protracted period of uncertainty and attempts to water down the regulations, the Senate disallowed the Corporations Amendment (Streamlining Future of Financial Advice) Regulation in November 2014.
Allen says his practice already adapted a number of years ago, when the Financial Services Reform Act was enacted.
“With the evolution toward the original legislation in the early 2000s and onto FoFA, we were already doing a lot of that sort of thing, so it didn’t actually challenge us, having to provide written [Statements of Advice] SoAs.
“We were also very fortunate that we were delivering face-to-face advice to clients. We do a regular six-monthly or annual review, so that meant it was a fairly easy conversation to have in introducing opt-in and fee disclosure statements,” he says.
Sky only had to part ways or restructure arrangements with around half a dozen individuals, who weren’t traditional portfolio clients and were either brought into a regular review program or moved on.
“They may have had some insurance, or some budgeting and cashflow advice for which they were paying a fee. We had to address that, we had a good hard look at what they were paying fees for…that’s’ the sort of thing that FoFA was aiming to address.
“And if we weren’t sitting down face-to-face with them very regularly, we had to assess that and see what value we were adding.
“Some might have several thousand clients who were paying a trailing commission, that would be considered an advice fee, who then found themselves having to issue FDSs and opt-in et cetera.
“There must be a lot of examples of practices that had that experience, and I’d be interested to see how they’ve dealt with that. While we have a very large client base, they’re all fee-based,” Allen says.
Sky Advisers writes to its clients annually, sending out postcards asking clients to opt-in to continuing the advice relationship – something it has done for around seven years.
“We send these out to absolutely everybody who has a policy in our practice. We’ve acquired a number of practices along the way, and there are some clients we never hear from. But if they do contact us, we reaffirm over the phone and via a face-to-face meetings.
“We also tend to disclose our commissions on our FDS letters, so to be consistent, we over-deliver and invite every fee paying client to opt in every year,” Allen says.
A succession dilemma
Being a regionally-based business brings some challenges, including attracting young planners.
“We have a fairly narrow age range, pretty much all of us are in our 50s…so its not a healthy range of ages in progression,” Allen says.
Flowing on from this, succession planning is one of the firm’s greatest difficulties.
“The challenge is finding the right people, with the right skillset and the willingness to become owners.
“A lot of people have the skills to be advisers, but not really to the point where they want to put money on the table or to put a significant amount of effort into growing the business,” Allen says.
He suggests the difficulty of attracting young planners is exacerbated by the absence of a financial planning specialisation at the University of Tasmania.
“With no financial planning major or a masters in financial planning, you have to go down the CFP and Diploma in Financial Planning pathway, so that’s increasingly challenging, whereas in most other places you can drop straight into a major in financial planning,” Allen says.
Rich referrals
Sky Advisers is also a Financial Planning Association (FPA) professional practice, with two of its three authorised representatives holding the Certified Financial Planner designation.
This enabled it to become part of a referral arrangement with industry super fund CBUS, which launched an advice program in January this year, in partnership with the FPA.
“It’s been the best source of referrals from a third party we’ve ever had. CBUS has been very supportive, and the FPA has been a very good intermediary.
“We also get a modest amount of referral business from lawyers, but not so much from accountants,” Allen says.
