The Australian financial planning market has been “controlled” by vertical integration, which has had a negative effect on the development of advisers here, the chief executive of Morningstar has said.
“The US is pretty competitive,” Kunal Kapoor said. “In Australia, to this point, there are a few firms that have vertically integrated and have controlled the market. And certainly that’s had an impact on the way advice has developed in the vocation.”
Kapoor spoke exclusively to Professional Planner after delivering a talk on “The Future of Financial Advice” at the 2018 Morningstar Investment Conference. He was candid about the differences between the US and Australian advice landscapes.
One of Australia’s biggest strengths, he said, was that our robust retirement system places financial advice firmly in the minds of the public.
“There are different points of strength,” he explained. “The Australian adviser benefits from the superannuation system; the consciousness around investing and saving is much greater here than it is in the US. So the adviser can play a pretty big role in Australia.”
Australia’s shortcoming, he said, aside from the proliferation of vertically integrated models, was that the advice industry has a weaker technology base than in the US.
“I think the American adviser has more tools around the availability of data, which paints a more complete picture of the client,” Kapoor said. “Australia is not quite there in that regard – it’s the technology.”
Kapoor agreed with influential US adviser Michael Kitces’ view, recently profiled in Professional Planner, that the Australian industry has benefited from Future of Financial Advice regulation and will further be strengthened by the influence of the Financial Adviser Standards and Ethics Authority. This style of regulation is something the US is moving towards, with the introduction of the fiduciary rule; however, implementation of this rule is proving to be problematic in the US and has been pushed back to mid-2019. This is something Kapoor laments.
“What’s happening with the fiduciary rule…depends on the day of the week,” he said.
Regardless of the timeline for reform in the US, Kapoor was adamant that major changes are on the horizon for the global advice industry and the way advisers are remunerated.
“My view is that, regulations aside, the global market is already moving to a place where fee-based advice is more highly valued because it’s more transparent to the end investor,” he explained. “Whether you have regulations or not, advice in the future is likely to be fee-based.”
For advisers, Kapoor said, the shift towards fee-based advice can only be a good thing.
“It’s hard, with that [asset-based] model, to show your value to your client,” he said. “The model itself isn’t going to disappear because I think the pricing is based on assets under management and the size of the relationship, but I think a fee-based notion will become more and more common.”
Asked to provide a timeline for this change, Kapoor’s reply was telling: “fast”.
