Separation of product from financial advice vital
Unaligned dealer groups cannot establish in-house funds management businesses and hope to maintain their independence, according to Tupicoffs partner Neil Kendall.
"There's no way you can claim to be independent and run a product provider at the same time," said Kendall.
"If you're running an financial advice business and someone comes and sits in front of you and you know you lose money unless you sell them in-house products, you can't expect client-focused outcomes," he said.
The comments come after Mercer head of wealth management Brian Long suggested that larger independent dealer groups could retain their mass affluent clients by running their own multi-manager funds.
"There's an opportunity to build, own or operate your own suit of products," said Long.
He added that the multi-manager funds would be catered to the client base of the dealer group, thereby satisfying the 'best interests' test.
"As a dealer group you can still chase down high-net-worth clients, but suddenly you've got a solution for mass affluent clients that is scalable, meets the 'best interests' duty, and also creates a revenue stream for the dealer group," he said.
Boutique Financial Planning Principles Group president Claude Santucci said the model could well be viable, but he was doubtful the dealer group could continue to claim it offered independent financial advice.
"I can't see how you could be called a financial planner if you're just a product distributor," he said.
"Independence is very important. We've taken a good step towards that [with FOFA]. If you take Mercer's advice you're probably taking a step backwards again," he said.
Shadforth Financial Group head Nick Bedding said his group would be open to running its own funds management business "if we felt we could do it better than the people we're outsourcing to".
"If you're capable of doing that in-house, then that shouldn't compromise [the 'best interests' duty] or your independence," he said.
One of the few unaligned dealer groups to actually operate the model advocated by Long is Professional Investment Services (PIS), whose parent company Centrepoint Alliance also owns a funds management arm (comprising of All Star Funds and Ventura Investment Management).
All Star managing director Kate Mulligan said the advisers at PIS can maintain their independence because the funds management and the financial planning arms of the business are completely separate.
"We have to convince the PIS advisers that our products are suitable for their clients - just like any other product. All Star and Ventura have separate compliance systems and different people," Mulligan said.
In addition, new All Star funds don't automatically go onto PIS approved product lists, she added.
"My products are subject to the requirements of any other fund manager - I have to earn a spot," Mulligan said.
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