It is now becoming increasingly clear that one of the major consequences of the Government’s Future of Financial Advice (FOFA) changes will be further industry consolidation and a diminution in the number of smaller dealer groups and individual financial planning practices.
This is not new information. Key executives in the financial planning industry, such as PIS general manager Grahame Evans and Count Financial chief executive Andrew Gale, have been warning of the impending consolidation and the re-emergence of the old tied agency model that dominated the financial services industry more than 20 years ago.
Indeed, as much as the financial planning industry rails against the Government’s proposed two-year ‘opt-in’ and the ban on life/risk commissions inside super, the industry’s greater concern should be the question of ‘graduated’ or ‘scaled’ advice and the recommendations which will shortly be released by the Australian Securities and Investments Commission.
There seems little doubt that unless dealer groups and financial planning practices have the necessary scale and infrastructure, they will find themselves excluded from the graduated advice arena – with the not inconsiderable spoils going to the major institutions and the industry funds.
The problem for smaller dealer groups and financial planning practices is that their exclusion from the graduated/scaled advice arena will not be a result of any unduly onerous regulatory requirements but, more likely, the limitations imposed by their inherent business models and lack of sufficient scale.
What is already obvious is that the very same industry superannuation funds that declined to utilise the regulatory relief around intra-fund advice will be lining up to provide scaled advice. Equally, the major banks and institutions have also been fine-tuning their business models.
The bottom line where scaled advice is concerned is that while it may not generate significant immediate returns, it very often represents a stepping stone for the provision of arguably more remunerative comprehensive advice.
Given the urgency with which the Government is approaching the implementation of its FOFA changes, it is highly unlikely to pay any undue attention to the competition and structural issues that will flow from its legislative changes.
However, in circumstances where there seems a real danger that industry ownership and diversity will be diminished, there would seem a legitimate argument for the issue being referred to the Productivity Commission alongside a reference on default superannuation funds.
Government policy decisions have seen the major banks extend their domination of the mortgage origination industry, and it would seem Government policy will create the same dynamic with respect to financial planning. This is hardly a healthy or desirable outcome.
