In-house funds could solve FOFA concerns, says Brian Long
Independent dealer groups wondering how they will service mass affluent clients under the Future of Financial Advice (FOFA) changes should consider starting up their own funds management business, says Mercer head of wealth management Brian Long.
The business model would be underpinned with "a series of multi-manager underlying building blocks at the sector and sub-sector level", said Long. Those building blocks could then be combined to produce some diversified funds, he added.
The construction of the in-house funds must take into account the "precise needs, preferences and culture of the dealer group and its client base", said Long.
"The problem with most multi-manager funds is that they're very peer-aware and generic. So they don't really meet the best interests test," he said.
However, by catering the funds to the client base, "you come up with a series of funds that actually reflect the needs of the underlying investors", Long said.
"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," Long said.
The funds management model would only work for larger independent dealer groups, as they would need sufficient scale to access institutional pricing for the multi-manager funds, Long added.
"One of the things that's elegant about this is that it basically meets the objectives of FOFA by making advice available to the public that want advice," Long said.
"This sort of product will allow independent dealer groups to service mass affluent clients, whereas at the moment they're all talking about getting rid of them," he added.
Recommended for you
Financial Services Minister Stephen Jones has shared further details on the second tranche of the Delivering Better Financial Outcomes reforms including modernising best interests duty and reforming Statements of Advice.
The Federal Court has found a company director guilty of operating unregistered managed investment schemes and carrying on a financial services business without holding an AFSL.
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
Compliance professionals working in financial services are facing burnout risk as higher workloads, coupled with the ever-changing regulation, place notable strain on staff.
