FOFA reforms threaten smaller players

The Federal Government’s Future of Financial Advice (FOFA) changes carry with them the genuine risk of benefiting the big banks, institutions and industry funds at the expense of mid-sized dealer groups and independent financial planners.

That is one of the key concerns to emerge from a Money Management roundtable with five senior players in the financial planning and funds management industry: Fiducian managing director Indy Singh (pictured); Count Financial chief executive Andrew Gale, Colonial First State general manager of distribution Marianne Perkovic, Fidelity Investments chief executive Gerard Doherty, and Association of Financial Advisers chairman Brad Fox.

Each of the participants expressed concerns about the potential for unintended consequences to flow from measures such as the banning of volume rebates, with Gale saying he believed the Government really needed to work through the implications of its intended actions.

“I think some of the out workings would be that it would confer additional power to the vertically integrated organisations in the market,” he said. “It would also have a greater degree of disruption.

“I think some of the large licensees are well positioned to deal with that because they would basically change their business models – and especially looking at taking on platform manufacture or responsible entity type roles,” Gale said.

However, he warned that while larger licensees might be able to accomplish such a strategy, he believed smaller to mid-size entities might find it more of a challenge.

“So I think a likely consequence if you went down the purist model route is some industry consolidation and arguably the diminution of independence of advice in the marketplace, which I don’t think would be a great outcome,” Gale said.

“That’s not to say that’s not the path that the Government will or won’t go down ultimately but I think they really need to go in eyes wide open regarding what some of the flow on consequences are.”

Perkovic also urged the Government to move on any legislative changes with its eyes wide open.

“Without rebates and clarity around whether white label payments are included, the advice businesses will become product manufacturers. You will then have people whose core competency is to give advice and run the licence now having to be a product manufacturer,” she said.

“There are some businesses like Indy’s that have done that and can do that, but there’s a lot of other businesses that don’t have that capability. So it will either lead to consolidation or a whole group of businesses running these products.

“If you have a think about what’s in the best interests of the clients, are they better off to have been an advice giver who got a rebate or an adviser that’s now become a product manufacturer? I think that would be a greater risk. So post FOFA and if rebates go, that will be the discussion we’ll have: is the industry reinventing itself, and are more product manufacturers coming?” Perkovic asked.