When I departed the financial services industry in late 2013, one main reason I was able to do so economically was being eligible for a five-year income payout. This was part of company policy in place for years for consultants departing under good terms, although until the year I left the payout was for a shorter period (one occasion on my part of really good timing). It was based on a valuation for assets passed on to other consultants, i.e. clients for whom they would take over servicing.
Part of what generated my concern about departure timing was being able to allocate clients to consultants who had enough experience to do a good job for them, many of whom were part of long-standing relationships. With other senior consultants likely in the departure market in the near future, I wanted to be ahead of the curve insofar as an easier transition.
Another part of my concern was the continuing impact of increasingly onerous compliance measures. The validity of this concern has been exhibited in an article in the April issue of The Insurance & Investment Journal.
Under a subject heading of ‘Financial Services Business Value Index’, there is an article discussing the impact of disclosure and compliance on the value of an advisor or consultant’s ‘book of business’. While it looks at this issue more from the insurance industry perspective, the central point has a high probability of applying to all financial industry related consultants, including their managers: the magnitude of compliance and disclosure rules coming into effect in Canada, July 2016, will impact the valuation of the client business, and in some cases the value could decline.
A senior partner at a firm which provides third party evaluations of books of business is quoted to say, “The expenses and the unprecedented amount of time required by compliance and the new disclosure rules…mean that the cost to service, maintain, and develop in-force business is more significant and above all more tangible than before”.
The article notes that a vulnerable element for an advisor (and by implication a consultant) in their block of business could from ‘liability’, which I would interpret to mean fallout from shaky or minimal relationships with clients in addition to the more concrete weaker records keeping mentioned in the article.
Points of view while factoring in this expanding, impactful compliance environment are also increasingly likely to complicate buy/sell situations as time moves forward, especially where a more structured policy (as in my experience) is not in place. This is one time a structured approach reduces stress.