The federal government's proposed introduction of an annual opt-in agreement for advice services will lead to planning practices losing significant numbers of clients, industry participants have said.
The measure, which requires advisers to get retail clients to sign an opt-in contract for the continuation of advice services, is part of the Future of Financial Advice reforms and is scheduled to apply from 1 July 2012.
"My take is that for the top 50-100 clients it is no problem because clients understand the fee they are paying. We meet them once or twice per annum and we just hand them a piece of paper," Eureka Financial Group managing director Greg Cook said.
"Where it gets trickier is with what they used to call C-class clients, those with less than $100,000 in super. We speak on the phone a couple of times a year to arrange co-contributions for a spouse, for example. The average practice has thousands of these clients and it is likely some of these will fall off," Cook said.
Strategic Consulting and Training managing director Jim Stackpool, who works with financial planning principals to transition to a fee-for-service model, said the annual opt-in requirement was likely to see a significant fall in client numbers in practices and that would mean a drop in the value of planning businesses.
"If you have a large base of clients with whom you don't have many relationships and who have little complexities and you are not seriously considering in the next 18 months to go broke or put it on the market, then you are crazy," Stackpool said.
"You think you are doing a good job because you are writing lots of transactions,
[but] my advice to you is sell. Sell them really quickly now that they are still worth 2.8-3.2 times recurring revenue."
In contrary to commissions for existing products, the opt-in arrangement will not be grandfathered and will apply to the entire client base.
"This means the whole client base is up for grabs," Stackpool said.
He said he expected that once the new requirement was in place, banks were likely to increase competition by offering honeymoon rates, where clients did not have to pay fees for a limited period of time if they switched over.
Those clients with whom a planner had little contact were most likely to leave their adviser for the bank's offer, Stackpool said.
Paragem Dealer Services managing director Ian Knox said the annual opt-in requirement was a draconian measure that got caught up in the government's reform of pricing structures.
"I don't think the government or the regulator should interfere in a free market or in agreements that advisers strike with clients," Knox said.
"What if a client doesn't want to be contacted every year?"
