Appearing on a panel at the Actuaries Institute Financial Services Forum in Sydney yesterday, Mr Howes was asked to comment on the withdrawal of some major banks from wealth management in the wake of the royal commission.
The former Australian Workers Union and Labor Party heavy – who leads KPMG’s asset and wealth management team – said the debate around vertical integration is not new and has taken many turns over the years.
“There are a large number of industry funds today who have railed against vertical integration for a long time, who are now vertically integrated businesses themselves,” Mr Howes said.
“[They] actually … have more similar characteristics in terms of the structure of their businesses to the retail funds than they did certainly 10 years prior.”
Mr Howes said those advocating for legislated dismantlement of vertical integration, or a strong recommendation against the model from the royal commission, should be “careful what they wish for” and that it may be counterproductive.
“I am skeptical about the view that structural separation of, say, a manufacturer and an adviser is by itself going to lead to better adviser outcomes,” he said, adding that ethics rather than structural reform is the answer.
At the same time, the former political strategist and adviser said it is unlikely that politicians will not seek some kind of reform given the heat of the royal commission.
“I don’t think that we will see the current structure of the wealth management industry remain the same into the next decade,” he said.
“I don’t think anyone in the industry thinks that’s going to be the case.”
Speaking on the same panel, Michael Vrisakis, a partner at commercial law firm Herbert Smith Freehills, said the term vertical integration has become “charged emotionally” and that the model is often misunderstood.
The sooner we get to the GP, Pharmacist and Drug Manufacturer model the better. You’ll always have poor Doctors that make mistakes and carry out unethical practices, but this separation surely creates confidence within the public, plus will create better outcomes. Right now we’ve got the Drug Company (the banks) funding and paying for the Doctors business (and their professional association the FPA). We tried the vertical intergration model and it’s obviously failed given the amount of red tape and compliance, royal commissions and just look at the unethical behaviour the FPA embarks on.
Hi Anne Good thinking so in your opinion what tangible steps need to be taken
can you summarise for us as most advisers agree with that
What unintended consequences?
If you have a company that earns profit by having more people use the thing they are selling, and then have advisers on the side that are meant to act in the best interest of the client, no matter how much ethics you ram down their throat the company is going to want their stuff sold.
It is so obvious. There is no consequences here, except for the product provider. How is this bad for any client out there if all advisers are unaligned? Is there danger they might be recommending solutions that only fit their needs and there is no concern of any other interest as the adviser is working for the same fee only?
Are you going to tell me scale will be a problem and increase costs to the client? I charge about half what I used to charge in a “senior role” at an institution with a much higher margin (the institution was not profitable from advice, only product). The clients had one option there, and now have any option that’s required now.
Not anymore
Will the sales managers that push for new business revenues be subject to the same ethics code…for many employed planners this is an issue that causes conflict. If vertical integration is addressed then industry funds would need to comply.. no special carve outs for anyone.
I have formally studied ethics as part of the three degrees that I hold, and again with professional designations that I hold, and again and again each year as part of mandatory CPD.
How is forcing me repeat the SAME CONTENT with a standalone FASEA ethics course going to add anything new? The FASEA code is 2 pages, so to fill out the course they will repeat the SAME generic ethics content that gets repeated in all courses.
You have a relevant point Fed Up. CFP 1 is assessed at 120hrs long. I see FASEA Ethics as a sub-set of a generic Ethics unit, with it taking up “One chapter”. I agree that if you’ve completed Ethics elsewhere (and at degree or equivalent AQF level) then you should get some credit for it.
[i]How is forcing me repeat the SAME CONTENT with a standalone FASEA ethics course going to add anything new?
[/i]
It will add new revenue potential for the FASEA board member who works makes an income from providing ethics training.
+1 ,
the only thing it will add is an expense you nor I need.
I’ve completed ethics at AQF level 9 as part of my masters degree and we are only required to have completed it at AQF 7, one would think that i would be exempt
And at what point does it kick in that no matter how many different ethics courses they keep coming up with it will not change the fact that if an adviser is acting unethical they will continue to do it unless caught.
Suck it up, if you want us to be seen as a profession, you’ll jump thru the hoops. There is also a compulsory exam for everyone, do you want an exemption for that as well?
Of course there is nothing wrong with Vertical Integration form the Banks or Industry Funds (WTF !!!)
Of course it’s those dam unethical financial advisers that cause every single problem in the whole industry, let’s blame the advisers again, let’s give them even more red tape and BS legislation to protect the indefensible world of vertical integration.
Vertical Integration has to go – and along with it all the dodgy managers, right up to the CEO’s putting vertically integrated advisers in positions that don’t work.
Agreed, why not make individuals responsible for their own decisions by having to meet individual license requirements. Stops the blame game and will limit vertical integration.
the silence is deafening… congratulations on Paul having the guts to call it as it is. Whatever the operating model in future… please provide time to properly transition
Bit vacuous; was there really nothing else to publish?
Why can’t the adviser be small business and the product provider big business?
I wonder if Paul Howes is still on Gary Weaven’ s Xmas Card list ?
Not any more…