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Forward Thinking Magazine : August 2011
19 One advisory practice that is well placed to cope with the new regulatory environment is Elston Partners. Investment Manager and Director Peter McVeigh explains that the business is based on individually managed accounts (IMAs) and doesn't rely heavily on wrap accounts or wholesale funds, which means the proposed commission ban doesn't impact the practice to any large degree. "We already operate a fee-for-service business model and charge an asset- based fee," he says. The business has always had a philosophy of clients holding direct assets. It doesn't charge brokerage on transactions, and markets the business to clients on the benefits of holding assets directly, especially from a tax perspective. "So we're not making any major changes to the practice as a result of FOFA, it's more about refining what we do. The most significant part of the reforms we will need to manage is the opt-in rules. At the moment we send out fee statements quarterly that clearly explain our fees and we'll continue to do that. In our opinion the cost of advice is only ever an issue in the absence of value," he says. McVeigh does, however, acknowledge the administrative challenge of having clients opt-in to receive advice. "The question is what happens if a client doesn't return the paperwork indicating they are happy to continue opting in and what will happen in terms of penalties if you continue to charge fees under that scenario." He says if an adviser has 100 clients who require time equivalent to half a day's administration to prompt them to return the opt-in paperwork it will equate to 50 days of admin work a year. "The real issue is the cost of the adviser doing administration work. It could form part of the annual review, but it's still downtime. The administrative process of sending out the paperwork isn't the challenge because financial planning software such as COIN and Xplan can be used to manage that." McVeigh says scaled advice is an area the business is considering, but says it will also be important to protect the business from the risks of offering scaled advice. "But the bottom line is that we're pretty comfortable with the changes because we've never relied on rebates -- it is part of our revenue mix but the vast majority of our revenue is asset-based. Broadly, we see the reforms as positive for both clients and advisers and we feel well placed to adapt to the FOFA reforms." Elston Partners We're not making any major changes to the practice as a result of FOFA, it's more about refining what we do. The most significant part of the reforms we will need to manage is the opt-in rules... In our opinion the cost of advice is only ever an issue in the absence of value. Peter McVeigh, Investment Manager and Director, Elston Partners Growth strategies