Grandfathered clients down 33% in sale value

The analysis from Radar Results said it had seen recent sale transactions of grandfathered clients trade between 1.5 times and 2.0 times the annual trail amount, but now these books are most likely to trade between 1.0 times and 1.5 times trails, giving buyers about 22 months of income.

It said previously these clients had been selling for as high as 3.0 times trail but more commonly at a high of 2.7 times trail during the period from 2013 to 2017.

In 2013, these trail commissions books were sought after because no fee disclosure statement was required and the opt-in requirement for new clients from 1 July 2013 didn’t apply, Radar Results said.

Now, it expects a lot of grandfathered books to now come onto the market for sale.

Remarking on the Hayne commission, Radar Results said it may not have explained the reasoning behind the recommended cessation of the trail commission, except to say it's conflicted.

It also believed that the commission felt that financial planners have been receiving revenue without providing a service.

While Radar Results said that in many situations this is correct, it’s also not the situation across the industry.

"I feel sorry for those planners who had borrowed money over the past five years to specifically buy grandfathered trail commission clients, thinking they would have an income for life," said Radar Results principal John Birt.

Radar Results noted that it was told that banks are not placing any value on these grandfathered clients and now do not see them as an asset.

However, it said it does not hold this view and that, with some effort, clients can be moved to fee paying.

Adrian Flores

Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.

You can contact him on [email protected].