How fit for FoFA is your practice? While planning practices will face more work on the regulatory and compliance front under Future of Financial Advice (FoFA) reforms, those firms with good client engagement will have an easier time with FoFA for a number of reasons, according to Mark Ballantyne, general manager of Financial Wisdom. In a recent No More Practice blog, he said advisers should ask themselves five questions – the ‘FoFA fitness index’ – to help gauge client engagement and assess how fit their firm is for FoFA. “A number of requirements under FoFA are designed to address poor client engagement. So having good engagement will not only make life easier under FoFA – but ultimately improve the value and saleability of your practice,” he said.
Larger planning practices more profitable. Larger financial planning practices earn around three times as much in annual fees per client as smaller practices, according to a Radar Results survey. The average fee per client for smaller practices – those with an annual recurring revenue of between $500,000 and $1.5 million – was between $1000 and $2000, compared to larger practices – those with a recurring revenue between $1.5 million and $4 million – with an average fee of $5000 to $6000 per client. “I see a lot of inefficiencies in financial planning practices which can be overcome with technology and merging. The number of staff required today to run a good-sized practice would have to be half what it was 20 years ago,” said John Birt, principal of Radar Results.
ASIC raises concern over custodians. There are concerns about an expectation gap between what is legally required of custodians and what investors expect the custodian to be doing to safeguard their investment, according to ASIC commissioner Greg Tanzer. “Custodians are important gatekeepers in that they have access to information, including real-time data on the flow of money through investment products, unavailable to ordinary investors,” he said. The role of custodians has come to the fore in recent times following a number of high-profile collapses in the financial services industry, including Trio Capital. Specifically, there have been concerns regarding the safety of investment assets that custodians hold; the duty of care custodians exercise; and whether custodians have appropriate internal controls to ensure the safety of assets held for others.
Advisers resistant to FSC’s replacement business framework. Most financial advisers are opposed to measures proposed in the Financial Services Council’s (FSC’s) Replacement Business Framework to stop the practice of insurance churn, according to a Guardian Advice survey. “We believe that only a small proportion of advisers arbitrarily churn business. However, we recognise this was an issue flagged by the Government when developing the Future of Financial Advice reforms, and we applaud the FSC for taking a leadership stance to address churn,” said Guardian Advice head Simon Harris. The survey found 71 per cent of advisers did not agree with the FSC’s definition of replacement business, while 88 per cent of advisers did not agree with five years being the right timeframe for replacement business and 78 per cent of advisers did not agree with the proposed remuneration level on replacement business.
SMSF auditor registration requirements detailed. The Government recently announced the details of the self managed superannuation funds (SMSF) auditor registration requirements. From 31 January 2013, auditors of SMSFs will be able to apply for registration with the Australian Securities and Investments Commission (ASIC). All auditors must then be registered with ASIC by 1 July 2013 to continue auditing SMSFs after this time. Auditors will be subject to a $100 registration fee and a $50 fee when submitting their annual statement to confirm details of their registration. To qualify for registration auditors must: hold a tertiary accounting qualification that includes an audit component or have successfully completed study in audit as part of a professional accounting body program; meet a fit and proper test; hold professional indemnity insurance; and pass a competency exam, subject to transitional arrangements.
Accounting firms grow faster. Financial planning firms can benefit from the acquisition of accounting practices, as growth in the client base and revenue of the accounting firm can be stronger than the planning practice, according to JNP Capital director Jason Phillips. InvestorDaily reports that financial advice practices that acquire accounting firms have been able to organically grow the accounting base at a faster rate, as advisers were able to refer and convert clients over to their accountants due to the intimate adviser-client relationship. “The best example I have seen involved a firm growing an accounting fee base from approximately $250,000 to over $1 million in about four years, compared with the firm’s financial planning base only growing around $200,000 during the same period,” Phillips said.
Products offer protection in negative markets. With all asset classes still struggling to win investors away from cash, developments in Europe will dictate overall appetite for investment products other than defensive ones in the current environment, according to S&P fund analyst Jason Patton. Against this backdrop, an S&P review of alternative multi-asset products found that managers are tailoring products to offer efficiency gains and improved protection in negative markets. It also found managed futures and other “long volatility” profile strategies are garnering greater allocation within fund-of-hedge-funds (FoHF), while the distinction is increasingly apparent between products with high equity beta characteristics and those showing a more “alternative” return profile with limited equity beta exposure.
Outlook for infrastructure investments positive. With volatility being a dominant theme in global equity markets during 2011, investors were attracted by the predictable cash flows, attractive yield profiles and more modest volatility offered by infrastructure securities, according to Lonsec’s 2012 Infrastructure Securities Sector Review. It found that over the year to 31 March 2012, both global and domestic infrastructure benchmarks fared considerably better than their broader equities counterparts, a trend which is also observable over the longer-term. Despite short-term economic concerns, there will be long-term opportunities for listed infrastructure and its inclusion in a portfolio should improve its overall risk return profile, Lonsec said.