Independent financial advisers (IFAs) and dealer groups are going to have to “get creative” to avoid a steady decline in income stream after the Future of Financial Advice (FOFA) reforms, according to KPMG.
Ronna Ludgate, director of financial risk management at KPMG, told the 2013 Actuaries Summit yesterday that following implementation of the reforms, the ban on commissions will mean that advisers are the most immediately affected tier in the financial services industry.
“Aligned and employed advisers, from a remuneration perspective, are probably the most immediately affected in that all remuneration models [in] the next 12 months will probably be completely overhauled,” she said.
“In terms of IFAs and dealerships, [there will be] a decline in steady income stream, so how are they going to get creative there?”
Ludgate said that the reforms mean advisers will have to increasingly rely on licensees in order to cope with the extra expenses.
Advisers would be likely to narrow their range of providers in order to better comply with the Best Interests requirement of the regulations, she added.
“For IFAs and aligned [advisers], they’re having to rely very heavily on the licensees to put all of these things in place for them, in order to be able to operate in the new world under MySuper and FOFA,” Ludgate said.
“The likely outcome of that is that IFAs that have traditionally sold maybe half a dozen to 10 different providers will probably narrow their scope to those that really provide the best, rather than having to learn 10 different ways of ‘acting in the best interest of their client’.
“There are so many new duties and burdens that if they were truly independent they just wouldn’t be able to afford to do it.”
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