Smaller players exposed by FOFA, say analysts

Australia’s major financial services houses are well placed to deal with the regulatory and other changes flowing from the Future of Financial Advice (FOFA) reforms, but some big question marks hang over proposals emerging from the Cooper Review, according to a key analyst report.

At the same time, however, it suggests smaller players may feel some pressure.

The report, issued by UBS Investment Research, examines the regulatory environment surrounding the FOFA reforms and the Cooper Review and their likely impact on the major wealth management and insurance companies.

The report warns that the main risks for planners are changes to the rules around volume-based payments and the possibility of an annual opt-in.

“From a planner perspective, a blanket volume-based payment ban is likely to marginalise certain planner models,” it said. “Some retail players (mainly wrap providers) would be required to make extensive changes to payment methods and incentive structures.”

It said an annual opt-in process made little sense and that it was difficult to determine the Government’s ultimate direction on fiduciary duty “given the ambiguous wording in the initial FOFA reforms.

‘But overall, we don’t believe the introduction of a fiduciary duty will impose onerous requirements on the scaled players,” the report said.

Looking broadly at planning, the report said that with the larger retail players already charging on a fee-for-service basis and adequately resourced to cope with additional compliance burdens, the FOFA reforms could be a net positive given the stress they might place on smaller groups.

On the Cooper Review, the report suggests the outcome is more difficult to read, particularly with respect to the implementation of the MySuper proposals and a recent speech by the Prime Minister, Julia Gillard, suggesting superannuation had risen higher on the Government’s agenda for 2011.