When speaking at IFA-CON in Sydney on 7 September 201,7 I said this:
“Whilst regulatorily Australia and the UK seem to be marching pretty much in step with one another, I get the sense that structurally, Australia is today facing the same kinds of issues that we in the UK were facing in the years following our first financial services regulation in 1986.”
Back then, there was commonly believed to be around 100,000 financial advisers, the vast majority of which were associated with direct sales forces of large life insurance groups such as Allied Dunbar, Abbey Life, Sun Life of Canada and Lincoln National, with the others in small life and general insurance brokerage firms.
Over the following 10 years, direct sales forces closed down. This resulted from a combination of increased requirements for knowing your customer (fact-finding), increased requirements on reasons why letters (statements of advice), implementation of minimum qualification requirements and commission disclosure.
By the late ’90s there were believed to be in the region of 25,000 financial advisers, the vast majority of which were in small businesses.
Today in the UK, we have around 25,000 individuals regulated as part of around 5,500 firms. Around 6,000 of those advisers are regulated through networks (boutique dealer groups?) who manage their licensing and other compliance arrangements, typically for a fixed monthly fee or a share of the member firm’s revenue.
To give you an idea of scale, your business would sit in the Top 100 of UK firms if you had around 60 advisers within your business.
So you can see that the market dynamic in the UK is very much about small owner-managed businesses. Therefore, when our Retail Distribution Review (RDR) reforms were implemented on 31 December 2012, the fear was around the extent to which these independently-owned, non-aligned businesses would be forced back into the arms of the larger companies and dealer groups. This then led to a real fear that those advisers who were offering independent financial advice would no longer be able to do so and be forced to offer restricted advice instead.
Now, the more I read and the more people I spoke to, the more I began to realise that the issues many Australian advisers seem to be facing relate to whether they need to operate outside the auspices of large dealer groups in order to meet client best interests rules, and if so, whether it’s possible to actually operate effectively either as non-aligned firms or as independent financial advisers.
And my words of encouragement from the UK to independent advisers in Sydney on 7 September were that there were 25,000 advisers before the reforms were implemented, and there are around 25,000 advisers now, so there has been no mass exodus from the market. In addition, around 75 per cent meet the UK definition of independent financial adviser in spite of all the doom-mongers and nay-sayers (of which we have plenty too!) who said their days were numbered.
So, if right now you are wondering if you have a future outside of a large aligned dealer group I can assure you, from the other side of the world, that clients really do want independent advice and that it’s both feasible and profitable for advisers to build their own non-aligned practices and offer independent advice.
So go for it!
Gillian Cardy is the founder of The IFA Centre in the UK and a consultant to financial services businesses. She was a keynote speaker at Australia’s first IFA-CON.
This commentary flows around the term “independent”. The UK sought to specifically separate manufacture and distribution functions. Companies like NAB in the UK sold off their planning arms in order to retain the manufacturing business. The FSC and its various associates lobbied well during FOFA and avoided the same outcome in Australia by blurring the lines between who pays and how a a fee is paid. This is not an issue if you don’t allow integrated business models.
It is little wonder AMP has sought to amend the BOLR process. The myth of independent advice from manufacturer aligned advice arms depends on continuing to blur the lines.
The latest foray by ASIC is again a victory for the manufacturer aligned advice arms who are trying to make use of the term “independent” impossible and avoid disclosure of the potential conflict as to which manufacturer owns/controls the business.