Killing off innovation is not the regulatory outcome we are looking for

Financial planning industry consolidation driven by regulatory uncertainty is stifling product innovation to the detriment of both financial planners and their clients, according to the managing director of Instreet Investment, George Lucas.

“That’s already started happening, and in future there will definitely be less products offered by independent financial advisers,” Lucas says.

He describes this as an “unintended consequence” of the Future of Financial Advice (FoFA) reforms and the ongoing Financial System Inquiry. He says this has been driven mainly by consolidation of financial planning practices, which are increasingly institutionally owned.

According to various industry estimates, institutionally aligned or owned financial advisers represent around 80 per cent of all financial planners operating in the Australian market. Lucas believes this institutional domination is decreasing the demand for product innovation, particularly given the limitations of institutionally owned practices’ approved product lists (APLs).

“As they get more concentrated, with five main gatekeepers of APLs, it’s very difficult for product providers to get through those.

“You begin to stifle innovation at an adviser level and a product provider level.”

Over-regulation?

While acknowledging the important role regulation plays in protecting consumer interests, Lucas also suggests there may be too much emphasis on this in the current financial services environment.

“It does surprise me, when there’s so much tinkering around [with regulation], when there were no major disasters,” Lucas says.

“The aim of the game has to be to find a fine line between a vibrant financial services industry and providing consumer protection.

“It is a very hard line for both the regulator and the government to walk down.”

Platforms

Asked for his views about the continued relevance of  platforms, with some commentators suggesting they may struggle in the years ahead, amid competition from alternate models such as ASX mFunds, Lucas says they will remain relevant but will be “no less and  no more” influential than they are at present.

In the retirement planning space, he observes that there is a trend of people who have high superannuation balances being advised to move into self-managed superannuation funds “and for those that don’t, they are very well provided for by platforms.”

“For smaller-balance clients, [financial planners] tend to put them on platforms,” Lucas adds.