Future of Financial Advice (FoFA) reforms risk undermining and potentially ending some independent advisory models that have been developed over the past ten years.
Specifically, a senior industry player has raised concerns about administration fees that financial planning practices receive from platforms but which are not passed on to advisers.
The changes could even see a flight by senior players into the institutional ranks as business models that seem to comply with the spirit of FoFA are tripped up by volume rebates.
Grant O’Riley, managing director of Capstone Financial Planning, made the case for some independents at “The Final Countdown”, a roundtable discussion recently convened by Professional Planner.
Bernie Ripoll, chairman of the Parliamentary Joint Committee (PJC) on Corporations and Financial Services, was questioned about planning businesses that run all the major platforms with no incentive for advisers to use a particular one.
“Ten years ago I had a view that it was very important to develop a business model that removed conflict,” said O’Riley. “We are independently owned and operated. We have no product bias whatsoever.
“From day one part of our value proposition has been that we would never incentivise an advisor to use a product or platform.
“We’ve got state of the art technology that we believe will cope with the FoFA changes. So in the main the findings that are presented – we’re comfortable with.
“But there are a couple of things that are going to bring about the demise – I’m not saying of Capstone – but some groups that have got a model like us because if we receive an administration fee from running our Wrap, that doesn’t go to the advisors but we use that as part of building the technology platforms to cope with change such as this.
“Capstone runs an extensive platform environment of all the major platforms. So we train and develop the advisers to use the most appropriate solution for the client. So it’s generally needs based and the advisor doesn’t get anything more from using one or the other.”
These volume rebates from the various platforms are not large but have a cumulative effect.
“Now, you remove that money from a growing independent, you remove our ability to not only continue to have technology answers in competition to the major institutions, marketing of independent practices throughout Australia,” said O’Riley. “You’re removing our ability, or downsizing our ability to do that.
“Not only do you do that but Capstone is one of the few positioned in Australia with this model. But we are one of the few genuine independently owned groups that will solidly penetrate the accounting fraternity once their licencing requirements are known.
“You remove our ability to play that market place if you remove the ability for a licensee to receive whatever you want to term it – administration fee or a volume rebate.
“And you remove my ability to be a major player in this industry by not allowing the licensee to receive an administration fee from a wrap account or rebate from a product provider.”
While Ripoll continued to maintain that a conflict exists, O’Riley explained the Capstone model.
“There are some groups that will have two or three platforms only on their approved product list and a good range of underlying funds – you could perceive that that has some form of conflict because they know that the recommendations from the advisor for the client are going to go into one of those three,” he said.
“And they can bulk up some serious money. In a group like us I think we run twelve or fourteen platforms. Now some are better than others. Some have different whistles and bells than others.
“But our environment is that we educate the advisors in the broad range of products and platforms and their role is to select the most appropriate platform if that’s what’s to be used, for the client.
“Now, some might be a low fee with normal packaging. Some might be a fully blown rapid count whereby it’s got fully blown reporting. It comes down to what the client wants. Different offerings, different charges and value propositions.”
Correction: Grant O’Riley was originally identified in this article as Graham O’Riley.
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