Advice industry fragmentation looming, says lawyer

As the big banks start to focus on their direct and digital offering to retail clients, advisers will slowly return to the non-aligned dealer group sector, according to a financial services lawyer.

Speaking at a media briefing in Sydney, Minter Ellison partner Chris Brown said that despite the banks' heavy investment in financial advice over the last few years, the new regulatory regime might prevent the intermediary distribution channels from performing as well as expected.

"If the investment isn't delivering to your desired hurdle rate then perhaps you will channel your resources towards other initiatives such as direct and digital," he said.

"So, they [the banks] are a little bit torn, I think, but I suspect it's more a natural attrition; when you look at it you'll see advisers who are perhaps thinking that they don't need to be in the institutional setting any more and that their clients' interests are better served working in a non-aligned setting."

Brown pointed to advisers' flight to safety under institutional umbrellas, which happened with the announcement of the Future of Financial Advice (FOFA) reforms more than three years ago. If it wasn't through acquisition, he said, the big banks were bulking up through natural recruitment of advisers.

"But my sense is that in the coming period — and it might be a year or two away — as the banks focus more on the direct and digital offerings to clients, we might see a pull-back of that flight to quality," Brown said.

"We might see the reconstitution or the reformation of non-aligned dealers."

Brown believes the move away from the big institutions might happen on the back of a number of foreign wealth management firms planning to enter the Australian market.

Minter Ellison had observed a number of US-based wealth management firms working across administration, funds management and advice, who are looking to get an Australian Financial Services Licence, acquire a portfolio management capability and a broad distribution capability in Australia.

"I suspect that with the Australian dollar moderating and the US dollar strengthening we'll see more interest from the States both in terms of funds management and others within the wealth management sector."