Exit Strategies Clouded by LIF Changes

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Advisers looking to exit their business in the next few years have seen their strategies placed in jeopardy, despite receiving a clearer picture around life insurance remuneration arrangements and professional standards requirements.

Connect FS Chief Executive, Paul Tynan
Connect FS Chief Executive, Paul Tynan

While these events have created some certainty around the future shape of the advice sector, Connect Financial Service Brokers Chief Executive, Paul Tynan said they have also raised the question of when mature age advisers should exit the market.

Referencing the end of non-risk trail commissions under the Future of Financial Advice legislation, Tynan said new advisers will struggle to enter the industry, particularly through the purchase of an existing business.

“Buying an existing business under a new AFSL will mean no trail brokerage can be transferred thus deterring the next generation of planners to enter the market,” Tynan said.

“With the increases in compliance, licencing, PI costs, new entrants will have no option but to start their financial planning career with an institution,” he said, adding that this will impact the exit goals of older advisers as new entrants struggle as small business owners in their start up years.

“If now is not the time to sell – then when?”

He also said advisers continuing to defer the sale of their practice expecting a higher price later on were making an ‘erroneous expectation’ and only successful businesses with modern operational frameworks were attracting interest from buyers.

According to Tynan, advisers can either sell in the current buyers’ market and look for a strong valuation multiple or continue to receive an income stream from their business.

He warned this second strategy was dependent on current business valuations holding up as the advice sector moved further into a fee for service world and also required advisers to meet new education requirements that may eventually stop them from being licensed and receiving trail brokerage.

Tynan said financial advisers had hit a ‘perfect storm’ around the issue of exit and succession “…and staying out at sea in a rapidly deflating life raft is not the answer”.

“If now is not the time to sell – then when?”, Tynan said.



3 COMMENTS

  1. “Buying an existing business under a new AFSL will mean no trail brokerage can be transferred”

    Is there any supporting evidence for this statement, as this would be important to know.

    • I am pretty sure that ruling got reversed almost immediately in NOV 2014 after the ‘unintended consequences’ were realised?

      • I had a chat with Paul Tynan and Paul stated, if I understood correctly, that the grandfathering arrangements that allow trails to be transferred between licensees don’t apply to *new* licensees, i.e. those established post-FOFA. The original quote was “Buying an existing business under a **new AFSL** will mean no trail brokerage can be transferred thus deterring the next generation of planners to enter the market”. [Emphasis mine]

        That is a very interesting point.

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