Financial planners have been put under the microscope recently by the federal government senate inquiry into financial services.
The effect of the inquiry on financial planners has been a shift away from trailing fee income from the lending institution to a business model built around an annual fee charged to the client.
The trailing fee model which has traditionally been used may be radically restructured or may be phased out entirely. Charging a customer an annual fee by a financial planner tends to result in the consumer subconsciously auditing the financial planner’s value each year, whereas a hidden cost buried in the fund manager’s annual percentage fee was less likely to be scrutinised by the customer.
This change is likely to make the financial planner’s fee baseless “locked in “, which in turn suggests the earnings multiples previously achieved when the financial planner’s businesses were sold may not be sustainable into the future.
They are still excellent businesses and deserve a strong price for the goodwill contained within their client bases, but perhaps not as much as the three times to three point five times trailing fee income enjoyed during the first decade of the 2000s.
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