Time to share the liability

It’s logical that the financial planning sector would seek better accountability from product providers and researchers, according to director of Fortuna Partners fund manager consultancy and distribution firm, Brandt Page.

Page said it was understandable that financial planners felt that they were the ones “copping it all the time” when things went wrong.

“It’s logical that you would want better accountability across the spectrum, but I’m not sure how it’s going to manifest itself. It’s a very difficult thing as to where the balance of liability lies – you’ve got the advice given in the first instance, then you’ve got the dealer group and what that group provides in terms of research, and then you’ve got the independent researchers that sit behind that, and then you’ve obviously got the product manufacturers at the very end,” he said.

“You obviously need a split of liability or accountability, and that’s a big challenge. There’s no doubt that it’s probably a fair point for advisers to feel that they’ve had most of that accountability or liability to date.”

Page said that fund managers suffer from the same reputational damage from a few poor products that advisers in general suffer from poor advice. However, he added that fund managers are also the victims of their own products, as one badly performing product out of a range will damage the reputation of the rest.

“Some of the bigger [manufacturers] have hundreds of different products, and one poor result or one poorly managed fund can have a big impact across the entire business,” he said.

Most fund managers would embrace a commission-free industry, Brandt asserted, although it might be a challenge for certain so-called tax effective sectors that traditionally offered higher commissions.

“I think most product providers will embrace it because it will remove the whole commission notion from competition – you’re not going to lose out on business to someone else just because they charge a higher commission,” he said.

Page said the current reforms package would result in greater innovation, especially in light of dealer groups wanting to take more control of the products and administration services. He said dealer groups are putting more emphasis on creating their own model portfolio process, and he disagreed that another layer of conflict of interest will be created by dealer groups looking to provide their own white label products and platforms.

“I think it’s more about dealer groups wanting to be more active in relation to the creation of their own approved lists for advisers,” he said. “They’re probably recognising that they had all these funds on approved lists, and some of them went belly up through the [global financial crisis]. And while the researcher may have given the fund the tick, the dealer group still looks bad because they’ve allowed their fund to get on that product list.

“It’s more about what’s a better way to approach investments, and that’s going back to basics – a sensible asset allocation process and trying to pick managers and product providers below that.”