The recent Australian Securities and Investments Commission ruling and ensuing debate about use of the terms ‘institutionally owned’, ‘non-aligned’ and ‘vertically integrated’, has dragged the industry into yet more introspection about its structure and regulation, when we’ve never been more required to be outward looking.
It is true that for a long time the wealth management industry was product-distribution focused. Those days are gone.
Greater transparency in regulations and disclosure, and the digital revolution that has brought an explosion in choice, competition and innovation, mean today the customer has a multitude of options and the ability to verify their choice of adviser. It is also true that they have never valued the role of quality advice more – as evident in the client surveys we have all seen.
Clients are smart enough to value the advice, ongoing guidance and support of a professional adviser who understands them and their dreams, responsibilities and concerns. Of course, there are many different kinds of clients, in terms of financial situation, lifestyle and attitudes, and financial literacy. And there should be many different advice business models to service their various needs.
As an industry, do we believe a small advice firm selecting assets on behalf of their clients, with nil or minimal oversight, charging their clients an advice and investment management fee is the best outcome? Is an industry fund, robo-adviser or vertically integrated commercial institution better? There are many pros and cons to each.
It’s time we mature as an industry and recognise our clients have a broad range of needs and there should be a similarly broad range of business models to meet their needs.
The purist ideologies should be removed from these discussions, regulations and philosophies and, more importantly, we should seek to understand what clients want and advise Treasury and politicians accordingly. In reality, few of our clients care about independent, non-aligned or non-institutional business models, let alone the pros and cons of each.
Regulation and its definition of industry terminology are not ends in themselves. They will not make anyone wealthier or happier or put them more in control of their financial destiny. They will not ensure advisers are building client-centric businesses, or that their owners are delivering the support they need to do this.
Regulation sets the basic expectations in terms of professional integrity, compliance and disclosure. But from a client perspective, these should all be givens. The regulator needs to create an even playing field and facilitate transparency but what matters is good client outcomes and only businesses focused on their clients can deliver that.
The bottom line is advisers and business models that are focused on their clients will succeed, no matter what structure or nomenclature is used. This is evident today in the exit of many advice firms from vertically integrated models where the culture did not align with the client’s interest. Quality advice businesses will outlast politicians, regulators and industry heavyweights who look to use advice and regulation for some other motive or idealistic objective.
Ultimately, it is the client who will decide these things. In today’s wealth management world of transparency, open access to information, and technological innovation, the customer is king and there is nowhere to hide.
