Speaking at the InvestorDaily Wraps, Platforms and Masterfunds conference, Focus Financial Partners principal Molly Bennard said the current state of the Australian advice industry is not dissimilar to that of the US prior to the large-scale migration of advisers out of the institutional channel.
“Four years ago we did a global research study on the wealth management pools in the world, and out of it came a couple markets that were large, growing, had a trend towards what we call independent but unconflicted fiduciary advice, and a regulatory environment that we felt supported that kind of trend,” she said.
“Out of that came Canada and Australia, so currently from an international perspective, a big part of our focus is in Australia as well as Canada.”
Ms Bennard said the shift towards independence had been a “long process” that was driven by three primary factors: change in adviser payouts, the compliance burden and changes in technology.
“Because of the change in the regulatory environment, the increased cost of compliance for the wirehouse [large dealer groups], the result has been a decrease in payouts for advisers,” she said.
“What’s happening is many advisers are paid a very small portion [for] a business that they built and they own, and the value that the wirehouse provides them can be replicated in an RAA structure [the US equivalent to an IFA], so that’s a really big trend.”
The article seems to imply that compliance costs are lower in the US for smaller, independent advisers. Unfortunately that isn’t the case in Australia. Many independent minded advisers here end up in large dealer groups, primarily due to the compliance cost economies of scale larger groups can provide. If Australian policymakers were genuine about encouraging independent advice, they should scale back the excessive compliance burden and associated costs.