Product evolution to slow in wake of reforms
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Financial product innovation will halt as uncertainty around the Future of Financial Advice reforms persists, according to Perpetual general manager of retail sales for Australian equities Matt McKinnon.
The start of the reforms package is still two years away, but McKinnon compared the effect on product providers to attempting to turn around an oil tanker.
“Adjustments that you need to make at a product level mean that changes to remuneration that are included in a product, for example, need to be thought about well ahead of time,” said McKinnon. “Even if the reforms are confirmed within the next six months, product providers will still have to move quite quickly to make sure that their product structures are robust enough to deal with the legislative change.”
But he said that as things stand, a number of national distribution groups are taking a step back.
“They’re sitting there and thinking that with all the uncertainty they’re not going to try and second-guess themselves as to what the legislation will look like,” said McKinnon. Instead, he said, the distribution groups were engaging in the consultation process with the industry and the Government.
“It puts a little bit on hold any sort of product evolution because you’re not going to change things in an uncertain environment,” he said.
Perpetual general manager of adviser distribution Damian Crowley said the feedback from most advisers with regards to the reforms had been centred on the ‘opt in’ provision for continuing advice.
“That’s a huge issue to have to annually go back to clients — that’s a massive exercise,” he said, adding that the implementation of such a reform is a lot more complex than the Government realises.
“Just one of the issues that advisers have identified is that your liability for advice goes on a long time, and your advice is really designed to be long-term. But if you give a client advice and after 12 months they say goodbye, they’re actually making a short-term decision on what is a long-term issue,” Crowley argued.
He said that the other question mark is what happens to all existing clients on trail commissions.
Crowley said at this stage the feedback from advisers is more about uncertainty towards the reforms than negativity.
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