Clients lose out as dealer groups 'rape and pillage'
Regulatory changes theoretically designed to boost the quality and independence of advice are in reality further constricting it to the advantage of large licensees, claims an investment analyst.
The increasing consolidation we’re seeing won’t be good for mum and dad investors, Wealth Within chief analyst Dale Gillham told ifa.
“You see [certain institutions] out there buying up dealer groups, and you’ll be seeing a lot of those [types of acquisitions] and there will be less advisers out there,” Gillham said.
Advisers currently have a lot of “C and D clients” but once Future of Financial Advice (FOFA) changes are implemented, including the RG246 ban on conflicted remuneration, it will make it hard for advisers not to focus on high net worth clients, he added.
“From a point of view of the retail investor, I don’t think they’ll get as much choice anymore and it will pull the industry together into more of a silo, rather than a broader brush,” he said.
Those C and D clients could end up in an industry fund or bank channel environment where groups are set up to offer cheaper, scaled advice, but non-aligned advisers will struggle with the cost of providing advice.
“It’s just about reducing cost base, and the cost of providing advice has been traditionally high because the industry is run by large dealer groups and they really do rape and pillage with their products, with high fees and high commissions,” Gillham said.
“So the adviser’s paying for that but if you make it cheap for the adviser to run their business, their fees are going to come down as well and mum and dad will be able to afford it.”
The industry needs to have the financial planner in control of their own business, more so than in a large dealer group environment, he said.
“We’re in a technology age; technology makes things cheap. If they’ve got the right technology at their fingertips it can reduce their costs dramatically and an adviser will be able to reduce their fees and that’s something that needs to happen.”
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