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Forward Thinking Magazine : August 2011
15 If they become law, the FOFA measures will have a fundamental impact on the way many advisers run their practices. While many within the industry have already revised their business model to a fee-for-service rather than a commission-based structure, others are still working towards making this switch. Advisers who are changing their business model need to understand what impact this will have on their revenue base and value proposition and put in place a well-managed strategy to effect this change. Revenue impacts Although at the time of writing a draft of the FOFA legislation had not been released and details such as grandfathering rules are yet to be bedded down, it seems clear that if the FOFA measures become law, bans on (in the long run) commissions and volume bonuses will apply in a fairly broad range of circumstances. For most practices, this will impact how they collect their revenue going forward given historical product commissions won't be an option. Angela Winton, a Division Director of Macquarie Relationship Banking, says the shift from a commission-based environment to one where a fee-for-service advice model is more the norm is an opportunity for advisory firms to "refine their value proposition and build a business that has a strong, sustainable revenue base. It's a chance to clearly articulate the value of advice to clients, appropriately cost the price of financial advice and build the right level of revenue to be able to cover the practice's cost base. There is an expectation that the cost of advice will increase as firms adapt to the new regulations. And even though there is uncertainty around the practical implications of implementing the reforms, advisers can still start work now to ensure that if the proposed reforms are introduced, the practice is prepared and will only need to make finishing touches." Angela Winton, Macquarie Relationship Banking Growth strategies Written by Alexandra Cain, Journalist