Michael Rees-Evans (left), Tom Reddacliff and David Bell

Vertical integration has been left out of the Quality of Advice Review terms of reference, leaving in limbo the application and appropriateness of vertical business models in the industry.

William Buck director Michael Rees-Evans tells Professional Planner the omission is a “big oversight”.

“Part of the issues that have left us in the position we are now finding ourselves, is the vertical integration with the banks selling products but also purporting to be giving advice.”

However, he noted that review lead Michelle Levy acknowledged the current regulation had no distinction between financial product advice and financial advice.

In the foreward on the advice review issues paper, Levy wrote the regulatory framework introduced by the Corporations Act and subsequent reforms have not acknowledged the difference.

“They all proceed on the basis that the regulated activity is the provision of financial product advice,” she wrote. “While financial advice is often used as shorthand for financial product advice, they are not necessarily the same.”

Rees-Evans says it is important she noted this distinction as there is no law that covers what holistic advisers would regard as advice.

“It’s great she’s picked that up because it strikes to the core of the problem that we’re facing – there is a mixture between flogging a product and advising clients on their life goals.”

Rules of engagement

Encore Advisory managing director Tom Reddacliff says it’s hard to say whether the omission of vertical integration in the terms of reference is an oversight but believes it should have been included to address the “rules of engagement” for different business models.

“If someone’s operating a vertically integrated model like AMP, Insignia and others out there that are privately owned we’re better off knowing exactly what those business models are or aren’t.

“They’re not independent models so let’s make that clear. That would help in turn with advice affordability but also clarity.”

AMP’s advice arm is confident it has a compliant vertical business model that has nothing to do with vertical integration.

But Reddacliff says using the one-size-fits-all approach for regulating all business models is confusing, and pointed to the UK as an example of better regulating different market sectors.