Advisers handcuffed by licensee lookbacks

Radar Results chief executive John Birt said around 20 per cent of the agency’s normal supply of practices were being restrained from selling by institutional lookback programs, which restricted the adviser from sale of their client book until they had passed an exit audit.

“Radar Results sells about 50 practices a year, primarily financial planning and accounting,” Mr Birt said.

“About 10 financial planning practices today want to sell, but they cannot move until lookback is complete. Some have been in this holding pattern for more than a year.”

Mr Birt said the restrictive contracts agreed to by some institutionally aligned advisers, combined with the expansion of ASIC’s remediation programs to cover up to a decade of historical compliance errors, meant many were simply exiting the industry without a business to sell.

“The lookback program is causing further pain for many financial planners and licensees. Some financial planners are going bankrupt and walking away from their practices, leaving clients with no adviser,” he said.

“Many planners cannot sell their practice or book of clients until they get sign-off from their licensee, saying that they have passed lookback.

“Any refund of fees, some dating back as far as 10 years, is the licensee's responsibility under corporate law. The licensee can pass the cost onto the authorised representative if the agreement between the AR and the licensee has an indemnity clause protecting the licensee.”

Mr Birt gave the example of a recent business owner who walked away from a sale worth hundreds of thousands of dollars, after having his practice value written down below zero after failing an exit audit.

“Last year a financial planner contacted Radar Results looking to sell his small book of clients, around $120,000 of recurring revenue (RR). The estimated sale price was 2 to 2.5 times RR,” Mr Birt said.

“After a month, he walked away from the book, saying he got a lookback bill from his licensee, which is far more than what the book was worth.

“This situation is a real problem and concern for the financial planning industry.”