The future of independent financial advice may be at a cross-roads but it is one the industry has faced before, according to several high-profile IFAs.
Independently owned financial planning group, Premium Wealth Management, believes industry changes are unlikely to impact strong IFA models but contends that a lack of diversity and conflicts of interest remain detrimental for consumers.
Premium Wealth Management general manager, Paul Harding-Davis, said that Premium has already made most of the changes necessary under Future of Financial Advice (FOFA) reforms but suspects the second tranche of changes will cause further headaches for the industry.
“Premium Wealth Management has structured our revenue model so that as our advisors are fee based, so are we,” he said.
“We are therefore volume-agnostic and provide all our advisors with the same level of support, regardless of their level of funds under advice.
“However, it is somewhat disappointing in terms of where the industry has come to. After years of evolution we are essentially back to how the industry was structured in the late 1970s and early 80s when advice was predominantly from product manufacturers and there were very few independently-owned advisors.”
Citing reports that almost 85 per cent of advisors are now aligned to a product manufacture of some kind, Harding-Davis added that a systemic conflict of interest between product and advice was inevitable.
“We think the banks, the life offices and the industry funds are all looking to achieve a similar outcome and this ultimately leads to less choice and less independent advice for the consumer,” he said.
Rodney Brown, Director of Tristone Private Wealth agreed that the reforms will not be detrimental to independent advisors but is concerned with how they will impact the consumer.
“We think the impact will be devastating for the consumer as there will be far less independence,” he said.
“A Big Four bank or other institution will license most advisers. Their advisers usually need to meet product-based volume or performance targets, rather than acting with what is in the best interests of the client.”
Questioned on his specific concerns over the second wave of reforms, Harding-Davis said the recently announced best interest duty is likely to be disputed by the industry.
“We believe the best interest duty is in line with how our advisors already operate,” he said. “However clauses (c) and (g) individually and together are likely to impede advisors from offering scaled advice.
“I expect that there will be further lobbying from the industry to find a more workable outcome.”
Steve Newnham, Australian Ethical director and consultant to Lonsec, said that there is a need for advisors to develop new skills to evolve with the changes in the industry.
“I think what the industry needs is to get back to the passion for clients. These are hard times with a wall of worry for clients. They need a strong shoulder to lean on to steer them through,” he said.
“The issues of changing regulation and global uncertainty have gone on for so long. Some of the skills from the past need to be reinvigorated, in particular – how we communicate with clients.
“Unfortunately, many advisors don’t want to talk to their clients, as there is little good news around. However, they need to know the individual client strategies and really stick to their guns.”
Harding-Davis concluded by arguing that there are two reasons for optimism.
“Overall, we are very confident in the future of the IFA for two reasons that come back to standard micro-economic theory.
Firstly, the future is always good for the niche specialist. And secondly, if your offering and client base is suitable for a bespoke offering to a sophisticated client, then it will do well.”
