According to Peter Johnston, the executive director of the Association of Independently Owned Financial Professionals (AIOFP), the perfect market model would consist of independent advisers working on a fee for service basis with consumers able to select products and services from product manufacturers where vertical integration has been eliminated.
Speaking to ifa, Mr Johnston reiterated that the government currently has the opportunity to remove the “profoundly conflicted vertical integration models currently operating”, which, he said, ironically also applies to some industry super funds.
“‘Horses for courses’ is a widely used truism suggesting a company or person should not venture into areas where they are either inefficient, not suited to the environment or hopelessly conflicted. Furthermore, it strongly suggests the person or company should focus on what they do best and stay away from activities where they are unlikely to act in the best interests of consumers,” Mr Johnston said.
“The story of banks entering financial advice in the 1990s is a classic example of this truism playing out, they should have stayed away from wealth management/advice and concentrated on banking services,” he continued.
“The banking transactional mentality simply does not suit wealth management and advice services,” Mr Johnston added.
He stressed that the banks’ “self-exile” after the royal commission, the ongoing “damming” AFCA data, and their “pitiful track record” with product failure “must exclude them” from ever entering wealth management and advice again.
“We think the minister should allow all product manufacturers to have trained internal staff to give product and related information to consumers and outsource advice to the independent/independently owned adviser market,” Mr Johnston suggested.
“This model will significantly reduce the cost of advice by not requiring internal advisers, mitigate AFSL risk for directors/management and provide a professional advice service to members.”
Speaking to ifa earlier this month, Financial Services Minister Stephen Jones said he believes it’s absolutely crucial to ensure the 5 million Australians approaching or at retirement have access to advice. He emphasised that without such access, Australia could potentially face a “crisis”, a situation he is determined to prevent at any cost.
His answer to this is to allow superannuation funds to expand their advisory powers.
Draft legislation extending the advisory powers of superannuation funds is expected to see the light of day by the end of the year, the minister told ifa, and while it is expected to closely align with the recommendations outlined in the Quality of Advice Review (QAR), it will also incorporate findings from other research sources.
But while Mr Jones did assure that he intends to look at ways to ensure more younger Australians can access advice, he is not inclined to involve banks and insurers in this, despite the QAR’s push.
Namely, the QAR doesn’t differentiate between super funds, banks, and insurers, and instead suggests that all institutions should be given expanded advisory powers in order to plug the advice gap. But Mr Jones disagrees.
“There’s no doubt if you’re able to crack it in super funds we can create some models which might be applicable. But I’ve also been pretty pragmatic and I said to the life insurers and to the banks, ‘Tell me what you want to do, that you can’t do’. Let’s try to solve real problems without having to go to the effort of setting up major regulatory overhauls, let’s look at what you want to do that you think you can’t.”
To hear more from Mr Jones, click here.
