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Red tape hinders US-style growth

The United States independent advice market is flourishing, but regulatory burdens may stop Australian IFAs from finding similar success, an adviser study tour has found.

Having undertaken a recent tour of east coast American financial planning firms, facilitated by State Street, Implemented Portfolios managing director Santi Burridge found noticeable growth in the US registered independent adviser (RIA) market.

“The wire-houses and institutions still exist but there is no doubt demand is dropping,” Mr Burridge told reporters in Sydney yesterday. “For the first time I saw a truly independent advice model. I’d never seen it quite like that; we saw independents winning.”

Mr Burridge presented research indicating a “13 per cent per annum growth rate of RIAs at the expense of the banks and wire-houses” and strong prospects for the independent market, with “23 per cent of all new funds heading towards independent advice businesses”.

Underpinning this growth of the US RIA market is the “revolution” of advisers re-evaluating their value proposition, Mr Burridge said, with the philosophies of ‘outcomes-based financial planning’ and ‘active asset allocation’ firmly ingrained.

However, Australian independent financial advisers seeking to emulate the success of their American equivalents may run into some regulatory hurdles, Mr Burridge said.

“In reality, most advisers don’t do active asset allocation in Australia due to regulation,” he said. “To make an [asset allocation] change, an Australian adviser realises he might have to write to every client, there will be a heap of paperwork, it has to be done incrementally because we don’t have the systems.”

To foster a greater ability for Australian IFAs to tap into similar success, the government should allow advisers more control of investment management – “assuming they have the right people and processes in place” – Mr Burridge said, including looking at deregulation of the managed discretionary account (MDA) system.

“Whether it’s MDAs or a version of it, we need to allow investment manager advisers to act in their clients' best interests without 300 statements of advice,” he said.

The study tour also revealed that the sector of the RIA market seeing the most growth consider themselves ‘asset gatherers’ as opposed to ‘asset managers’ and are willing to outsource investment management to third parties and increase client-facing time.

In addition, successful US firms are reflecting a greater focus on risk management over chasing yields – a focus that has shifted during the global financial crisis.

Mark Nagle, head of wealth management at AMP-aligned firm Treysta Wealth, who also took part in the study tour, said this approach is starting to take hold in Australia but is still miles behind the United States and UK.

“I think perhaps because we are a younger nation, risk management has been less of a focus [in Australia],” Mr Nagle said. “But as the wealth ages, the demand will become more consistent with these developed markets.”