In its submission to the Financial System Inquiry, SPAA echoed its longstanding view that “high quality financial advice” is essential to minimise risks associated with establishing and managing an SMSF, but goes a step further, touching on the issue of vertical integration in financial services businesses.
“The financial advice industry has undergone significant consolidation over the previous decade with vertically integrated firms that both sell financial products and provide financial advice to consumers becoming the largest licensees in the AFSL system,” the submission states.
“The comingling of the product distribution/sales and financial advice can impair the independence of advice being provided to consumers. It is because of this that vertical integration can pose a threat to the provision of independent financial advice.”
While the submission makes clear that SPAA “does not contend that vertical integration…is inappropriate or should be prevented”, it also throws support behind calls to improve disclosure requirements for advisers licensed by product providers.
“Mandatory disclosure as to whether advice is independent would allow consumers to be informed in deciding whether the financial advice they are receiving is fit for purpose and offers them the best value,” the submission states.
In addition, the submission calls for a “clearer distinction between what is financial advice and what is factual or sales information”, echoing the comments made by former Federal Court judge Kevin Lindgren QC.
The submission suggests that the Murray Inquiry considers introducing a new licensing regime which would “encourage” greater numbers of IFAs, akin to the Registered Investment Advisor (RIA) system in the United States.
A recent study tour to the US led by Implemented Portfolios and Treysta Wealth Management found that RIA firms were thriving in the US at the expense of traditional wirehouse advice businesses.
Wells said Michael. This situation is, of course, far from new but is certainly a significant issue with the current level of consolidation of planning groups. The best part is that it will cost nothing to disclose clearly the ultimate owners/controllers of planners. As Michael says, those people who find comfort in dealing with a bank subsidiary will have their way while those who are looking for a non-aligned solution will no longer be misled.
The only question to be legitimately asked is why not?
Consumers make a choice to deal with a big institution and feel secure. Nothing wrong with it just so long as they are aware they are doing it.
However when they think they have chosen to use an independent only to discover that the “independently branded” firm is owned by an institution, that is considered under trade practices legislation in other areas as misrepresentation.
Let’s provide for informed choice so the consumer can choose the institution or not.