Institutional conflicts of interest remain in advice
The institutions are resisting individual adviser licensing for fear of losing influence, according to Connect Financial Service Brokers principal, Paul Tynan.
Tynan said financial advice industry continues to be riddled with challenges, particularly with the “potential and perceived” conflicts of interest inherent in institutions, according to Connect Financial Service Brokers.
He said the long-term viability, role, and relevance of licensees have been under constant scrutiny since the inception of the advice model.
“From its inception it has been impossible to defend the claim the process is in the best interest of the consumer and provides unbiased/uninfluenced advice when institutions are both the product manufacturer and owner of the licensee,” Tynan said.
“It’s a situation that first evolved from the development of platforms in the 90s that laid the foundation for the current business model.”
But Tynan argued that as the advice sector transitioned to a “true profession”, it would be the public that would decide on the validity of non-institutional influence, and individual adviser licensing would be the preferred model.
But institutions would resist the individual adviser Australian financial services licensing (AFSL) concept for fear of losing influence and control of their distribution networks, while regulators would fear an increase in their workload.
Meanwhile, many institutions still had a buyer of last resort (BOLR) provision in place where there is an agreement for institutions to buy individual licensees if they cannot find another buyer but Tynan said this practice would become more difficult to defend under conflict of interest/client best interest scrutiny.
“Although the institutions have been constantly chipping away at the rules, for several of the larger industry players their business models are very dependent on BOLRs,” Tynan said.
“Unfortunately, again it is the would be new generation/entrant that is impacted the most by these BOLR rules that has institutions requiring them to buy businesses/books of clients at inflated prices that do not reflect true market valuation.”
Furthermore, while institutions have always invested heavily in platforms and have attracted investment fund inflows, smaller nimble players have been quicker to keep pace with technological innovations.
“It’s hard to see how (and if) institutions can respond to the new era of change that is driven by client centric business models and technology… unfortunately time is not on their side,” Tynan said.
AUTHOR
Malavika Santhebennur
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