FROM THE time the Future of Financial Advice (FOFA) reforms were first announced, many have spoken as if the writing was already on the wall for independent advice.
As the banks and AMP continue to dominate market share and gobble up former AFSL holders one by one, the signs for non-aligned advice over the past 12 months have not been good.
A challenging small business and tax environment, coupled with specific professional indemnity insurance and regulatory compliance pressures, has been too much for all too many non-aligned dealer groups. Independent licensees from AAA Financial Intelligence to WealthSure have struggled to stay afloat, both with and without intervention from our friends at ASIC, and many independent boutiques have already headed for the exits or for the safety of a bank umbrella.
And yet while the thrust of consolidation by the big end of town is unlikely to abate anytime soon, this doesn’t necessarily mean the end is nigh for independents. In fact, even the bigger players have not ruled out an independent financial adviser (IFA) comeback.
Speaking on a panel at the 13th annual Wraps, Platforms & Masterfunds conference in the Hunter Valley in late August, IOOF general manager, distribution, Renato Mota said the market share enjoyed by the bigger players is by no means set in stone, and that the trend may be “cyclical” rather than structural.
“Whilst we have seen a contraction of the mid-size dealer groups and independent groups, I think there will be a re-emergence of the independents – and I think it will largely be led through technology-based efficiencies,” Mr Mota said.
“To think the market, the entire market, will be institutionalised into five or six pillars is probably naive. That’s not to say that’s a bad thing; there are certainly efficiencies in doing that. One of the really attractive qualities about our market here in Australia is the diversity. Whilst that might contract temporarily, it will come back.”
Addressing the same audience, IRESS senior BDM Michael Kinens said that not only are consolidation trends cyclical, but also that he is already seeing the pendulum swing back towards independence.
“The number of advisers that are part of a larger network wanting to go out on their own has probably been stronger than it has been for a while,” Mr Kinens said.
“The number of conversations I’m having, at this point in time where you’re struggling with all the things you’re struggling with, is it sensible to be thinking about going out and creating your own licence? But people are determined: the enquiries from existing clients that are wanting to break away from their dealer group… is interesting.”
Research released by consultant My Dealer Services (MDS) has also found a marked increase in enquiries from advisers who are thinking about a move to self-licensed arrangements.
MDS chairman Don Wiggins reckons “dealer group dissatisfaction” is growing and along with it, a new thirst among advisers to once again run their own show. Indeed, 69.1 per cent of the 68 respondents to an ifa online straw poll believe IFAs will make a post-FOFA resurgence.
A change in government – which, at the time of writing, three days out from the general election, seemed likely – may also help facilitate the rise of independents, or at the very least reduce some of the red tape burdens that have made independent life less feasible.
While the Coalition’s pre-election financial services policy is not drastically different from the agenda implemented by the Rudd-Gillard-Rudd Labor government, the removal of FOFA’s opt-in clause and proposed moratorium on further regulatory change may provide greater clarity and grant some small reprieve.
In addition, a Coalition government is much less likely to give the industry superannuation funds the unfaltering support seen since 2007 – which can hardly be a bad thing for private sector financial services small businesses.
All of these factors indicate that a shift in mindset is taking place for independent advisers – and those with insto licences who harbour dreams of independence. For now, the banks and other big players are sitting pretty. But they would be ill-advised to get too comfortable. «
