Coalition unlikely to make any reforms to vertical integration

Vertical integration has been a notable absence from the Quality of Advice Review and financial services minister Jane Hume has indicated the Government’s position is that it sees no legislative need to eliminate it.

In an interview hosted by roboadvice firm Stockspot, Hume noted Commissioner Hayne didn’t ban vertical integration but “it just seemed to happen that way on its own”, implying that the most egregious examples of vertical integration have abated.

“Which is a good thing. It’s something to keep an eye on but not something government needs to legislative for right now.”

Vertical integration was not included in the advice review terms of reference which has been labelled as a “big oversight”.

The royal commission, Hume said, has meant people now look at the financial industry with “fresh eyes”.

“The government has responded in a very comprehensive way to the recommendations Hayne made to make sure there’s no more hawking, that products are marketed appropriately to people, and there’s a target market for those products.”

Hume is referring to anti-hawking laws, and Design and Distribution obligations that came into place last October.

“People are far more cautious now in the way they distribute products in a way they never have before.”

Hume said she has no concerns about bad advice returning when the market cycle turns again and times get tough.

“There’s appropriate regulation now in the financial advice sector in a way we haven’t seen before. There’s obligations that are on financial advisers themselves as well as the dealer groups to make sure there is a high standard. The education standards of financial advisers are much higher now.”

Hume is adamant the “chances of poor advice” are less likely than they use to be.

“That said, there will always be people that lose money because investments are inherently risky. You invest to make a return but there is always a risk involved and that’s something that people should have to understand.”

It’s not the role for the governments to stop people taking risks, Hume said, echoing a similar defense of keeping managed investment schemes out of the Compensation Scheme of Last Resort.

“We want people to take risks and create wealth but at the same time we have to make sure it’s done in a way that you can trust the financial advice you’re getting.”