2017 Year in Review: Pleasure and Pain

From increased compliance to a harsher regulator, it was a year of uncertainty and upheaval for financial advisers. But with an IFA uprising and innovations in technology, there was also some cause for celebration.

The financial advice sector has watched two very distinct stories play out in 2017.

The first one, the more regrettable, revolved around new laws and regulation. It focused on the passing of heavily-resisted legislation and the tightening of ASIC-approved marketing material.

This led to increased uncertainty for financial advisers, many of whom are still at a loss about what step to take next.


Nick Hakes, AFA general manager of member services, partnerships and Campus AFA, said advisers are still looking for more direction in regard to the new professional standards.

“What we’d like to see is certainty; we have such momentum behind us and advisers, licensees, manufacturers are actually already starting this higher education wave,” he said.

“What we can’t do is stall that momentum, and there’s been a little pent up frustration because people actually just want to get on with it, so what we need is certainty, because we’ve got the structure, and now we just need to know how that will work in practice.”

But then there was a second story, focusing on the positives, that saw financial advisers take back control of their businesses while technology providers came together to push the industry forward.  

The rise in self-licensing has sent an empowering message to others in the IFA community, with Bell Potter analysts predicting this sector to grow.

“The move away from the large incumbents (four major banks and AMP) continues, with these five players losing over 400 advisers in the last six months,” said analysts Lafitani Sotiriou and James Filius.

“This trend to independence is a key theme in the sector and we believe it is set to continue.”

Here’s ifa’s reflection on a year of two tales.

The self-licensing rise and ASIC’s new rules

The past 12 months have seen the rise of the self-licensed adviser, a growing trend that may threaten the dealer group model as we know it.

The 2017 Dealer Group of Choice Survey – conducted by Momentum Intelligence and Forte Dealer Solutions, in partnership with ifa and InvestorDaily – found that financial advisers are not only migrating away from bank-owned dealer groups, they are seriously considering obtaining their own AFSLs.

The survey found that 19.5 per cent of financial advisers are either currently looking or likely to look for a new licensee. This is an increase over last year’s 16.9 per cent advisers who said were considering new homes.

Of those 19.5 per cent, 51 per cent are hoping to move to a non-aligned or independent group, while 13 per cent said they would go to an institutional licensee.

But, for the first time, 29 per cent of advisers said they are looking to obtain their own AFSL.

“The rise of self-licensing threatens all dealers, aligned or non-aligned. The financial motivation stems from the inability to see value for the dealer fees they pay. More are seeking this avenue than ever before,” said Steve Prendeville, director of Forte Asset Solutions and Forte Dealer Solutions.

 “The only way dealers can compete with this new trend of self-licensing is relevance, competitive pricing and culture and community.”

ifa has documented several examples of this movement, including two former authorised representatives of Financial Wisdom, who left the Commonwealth Bank’s financial advice network to obtain their own licence under a new banner.

Melbourne-based firms Mercury Wealth Management and Guidance Financial Services have come together to apply for an AFSL under the name of Sprout Financial, parting ways with the CBA-owned dealer group.

Guidance principal Paul Benson told ifa he experienced a growing “discomfort” with being licensed by a major product manufacturer.

“It really felt inconsistent with being a true professional,” he said. “I’m at a point where I think things need to be black and white.

“Either you’re a product manufacturer or you’re an advice provider – you can’t be both. I view the move to holding an AFSL directly as part of a continuum on the path to full professionalism.”

Two prominent former dealer group bosses have also joined forces to help advisers transition to independent and self-licensed practices.

Fortnum Financial Group founder Ray Miles and former Financial Services Partners chief executive Geoff Rimmer have launched a consultancy, the Green Zone, to capitalise on growing demand among practice principals to obtain a licence.

Mr Rimmer said holding an AFSL is the “path to true independence”, “future professionalism” and the provision of “conflict-free advice”.

But just as more practices seek to identify as independent, ASIC has placed extra barriers this year to block some advisers from using that term.

In June, the corporate regulator announced that, in its opinion, a financial service provider “cannot use terms such as ‘independently-owned’, ‘non-aligned’ and ‘non-institutionally owned’ if it does not satisfy the conditions in s923A [of the Corporations Act]”.

ASIC also stated that in some cases, being subject to a non-open APL would mean being unable to use any of the relevant terms.

It meant thousands of small businesses, who either have their own AFSL or use one that is privately-owned, but also accept commissions on insurance products, can no longer use these terms when marketing themselves to consumers.

The response was decisive, with many accusing ASIC’s intervention as being anticompetitive and a boon to the banks at the expense of the consumers who desperately need greater choice and disclosure in financial services.

But not everyone disagreed with ASIC’s decision.

Dacian Moses, president of the Boutique Financial Planners (BFP) group, told ifa that while many of his members are concerned that ASIC’s s923A clarification will make it difficult for them to differentiate themselves from the institutionally-aligned sector, they have decided to accept ASIC’s position.

“We can see no value in an attempt to repeal aspects of this clarification and no benefit in quibbling with the regulator on the position they have taken,” he said.

“The public interest is best served by clarity and that has now been provided with respect to the use of restricted words on which our regulator places great importance.”

This story, however, does not end in 2017.  

In October, Minister for Revenue and Financial Services Kelly O’Dwyer said the government is open to engaging in a dialogue over reform of the definition of independent financial advice.

“We believe it’s important that those who hold themselves out to be independent are genuinely independent and we support ASIC’s work on that front,” Ms O’Dwyer said. 

“Where changes are required we will always be open to listening to industry, we look forward to having that discussion and I’m sure that will be one of the topics.”

Increased legislation   

The year 2017 saw the passage of two of the most important pieces of legislation for financial advisers: the new professional standards and the Life Insurance Framework.

Despite being hotly debated in 2016, both the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 and the Corporations Amendment (Life Insurance Remuneration) Bill 2016 were passed at the same time in February without amendments – one after the other.

The education bill includes compulsory education requirements for both new and existing financial advisers, supervision requirements for new advisers as well as a code of ethics for the industry.

The bill also mandates an exam that will represent a common benchmark across the industry and an ongoing professional development component.

The new professional standards regime will start on 1 January 2019, whereby new advisers entering the industry will need to have a bachelor’s degree that meets the criteria for ‘AQF7’ status set by the Australian Qualifications Framework. 

The degree will need to comprise of 24 courses (including 12 “core courses”) that cover “ethics, professional attitudes and behaviours”, “financial planning and the advice process” and “technical requirements”.

Existing financial advisers will have access to transitional arrangements allowing them two years, until 1 January 2021, to pass the exam, and five years, until 1 January 2024, to meet the education requirements.

As at November 2017, the Financial Adviser Standards and Ethics Authority (FASEA) said it was still considering its position on “pathways for existing advisers”, saying it will establish a number of working groups and community consultation initiatives to that end.

Meanwhile, under LIF, the rate of upfront commissions paid to advisers will be phased down to a maximum of 60 per cent, with ongoing commissions capped at 20 per cent.

The bill will also introduce a two-year upfront commission claw back period under which 100 per cent of the upfront commission will be clawed back in the first year, and 60 per cent of the upfront commission will be clawed back in the second year, should a policy lapse

Level commissions and fee-for-service remuneration will remain and be uncapped.

The changes will commence on 1 January 2018 and will apply equally to all life insurance advisers, and will provide flexibility to ensure the reforms capture all life insurance channels in the future, including those that may not be considered to be providing financial advice.

But that’s not the end in the string of new laws.

A new ASIC levy, which plans to collect $29 million from financial advice licensees, was passed into law in June without amendments.

Minister for Revenue and Financial Services Ms O’Dwyer said the ASIC Supervisory Cost Recovery Levy Bill intends to improve outcomes in the financial services sector by having those entities regulated by ASIC bear the regulator’s costs, rather than Australian taxpayers.

ASIC has since revealed that licensees will pay more than $1,500 per adviser per year to contribute to the new ASIC funding model.

The new levy has been criticised by many in the industry, including AFA chief executive Philip Kewin, who said in April that the funding model is unfair to advisers behaving ethically and is likely to put financial advice out of reach for those who need it most.

“This seems unfair, particularly when all advisers have already had to bear a raft of costs, including increased professional indemnity insurance premiums and costs associated with upgrading fee disclosure statements and incorporating opt-in arrangements,” he said.

"Financial advice should not just be for the wealthy and this model should not unintentionally facilitate that outcome.”

Moves in technology 

The proliferation of technology within the advice industry has been both strong and consistent in recent years, but the impact that new technologies are having in the sector have become even more pronounced in the last 12 months. Australia’s fintech adoption rate is among the highest in the world, according to a study published by EY in June, with 37 per cent of the population making use of at least one fintech product - placing the nation behind only China, India, the UK and Brazil.

In a separate report, EY found Australian fintech firms’ revenue had grown an enormous 208 per cent in the year to June 2017, with just under a quarter of these businesses experiencing revenue growth above 700 per cent.

The impressive support for technology within the advice sector is perhaps unsurprising, if Netwealth’s AdviceTech Research Report 2017 is reflective of Aussie advisers’ thoughts on the matter.

The report, issued in June, found advice technology was winning the “hearts and budgets” of advisers around the country, with close to 80 per cent planning to spend more on client engagement tools and planning technology.

Government likewise threw its support behind technology, with Treasurer Scott Morrison praising the “huge benefits [and] huge opportunities” robo-advice presents to the industry before outlining plans to make Aussie fintechs more competitive in the May budget.

“Fintech is transforming the world's financial systems and economies,” Mr Morrison told G20 delegates in Germany in January.

“Consumers' preferences are already changing the way that many financial products and services are delivered, simultaneously utilising and requiring technological innovations to keep up with the demands of a rapidly changing world.”

Subsequently, government used the May budget to announce numerous legislative changes to support the growth of the nation’s burgeoning fintech sector, reducing the barriers to entry for new banks, relaxing ownership caps for new entrants to the space, and lifting the prohibition on authorised deposit-taking institutions with less than $50 million in capital using the term ‘bank’ to describe themselves.

Individually, many of Australia’s well established adviser fintech firms have been immensely busy growing, expanding and revolutionising the way advisers do business.

Notably, wealth management technology company Netwealth announced its plans to list on the ASX after selling Bridgeport Financial Services - the last of its remaining financial advice businesses – in September.

“Netwealth has a clear objective to capture a greater share of the market in both the superannuation and non-superannuation sectors through its innovation capabilities and ability to quickly respond to the needs of financial intermediaries and clients,” the company’s joint managing director Matt Heine said, adding the business had a “clear growth strategy” to support its public offering. Earlier in the year, the company’s funds under management and advice hit $15 billion.

SuiteBox, a company that provides virtual meeting spaces for advisers to interact with clients, also had a busy year, announcing numerous partnerships with the likes of Elders, Aon Australia, Dover Financial Group, IRESS and Centrepoint.

“In the financial services industry in particular, technology is having a huge impact, speeding up interactions with clients and enabling transactions to occur in real time, which can only benefit clients,” said SuiteBox chief executive Ian Dunbar following the announcement of the Dover partnership in November.

“Software has enabled virtual meetings, which eliminate the need for in person meetings, which can be time consuming and costly for people to attend.”

SuiteBox was not the only business to announce significant partnerships throughout the year, with advice software provider Midwinter announcing in October it would integrate its AdviceOS offering with financial services business management platform PractiFI.

IT consultancy YTML entered a partnership with risk advice software provider Omnium to give the latter’s adviser base a platform and generate warm leads.

In July, Moneysoft and FinPal announced they would be partnering in a bid to strengthen adviser-client relations by offering a real-time data feed into FinPal’s adviser software.

“Having a real-time view of their clients’ financial situation will enable advisers to be more proactive and more efficient in the delivery of advice,” said FinPal chief executive Stephen Handley at the time.

Not content just to broker a partnership with Moneysoft, FinPal went on to announce an update to its software in November, adding mortgage broker functionality to its services, noting the “significant overlap” between mortgage broking and advice.

Support for regulatory technology (or RegTech) also strengthened throughout the year, with ASIC announcing a new body aimed at promoting the use of such services within financial services, and technology company IRESS making a $2 million equity investment in RegTech and data analytics firm Lucsan.

Meanwhile, FinTech Australia created an industry body to represent businesses dealing in insurance technology (or InsurTech) to help Australia become “one of the world’s leading markets for insurance innovation”.

The popularity of new technology has, however, presented advisers with a new challenge, the rise of ‘BigTech’ companies – such as Google and Amazon – as viable competitors in the financial services space.

In September, consulting firm Capgemini released its 2017 World Wealth Report, which found 56.2 per cent of high-net-worth investors (in this case referring to those with more than US$1 million in disposable assets) were comfortable using large technology companies for their financial services needs.

“That’s a very strong indication that the trust issue – which has historically rested principally with the primary financial services adviser – is now shifting in favour of ‘BigTech’,” Capgemini banking and capital markets industry practice leader Philip Gomm told ifa.

“I think the recognition is that BigTech have access to data in vast quantities and analytics capabilities in terms of being able to derive insights from that data which extend beyond the capabilities of their face-to-face legacy wealth adviser.”

However, Mr Gomm noted this has only come about recently, and added that while these firms could pose a threat to advisers, they could equally present opportunities to improve practice efficiencies and unlock new avenues for growth in the sector.

The new and familiar faces

In an industry as dynamic as financial services, its little wonder the last 12 months have seen so much change, from large scale mergers and acquisitions to the industry’s leading figures moving on to new roles.

Elders Financial Planning was among the most active firms when it came to growth, signing Enlighten Wealth Management, Saltbush Financial Services, Prognosis Wealth Management and Directional Financial Planning to its network, as well as expanding its Queensland team with the appointment of AFA Rising Star finalist Karlee Hoog-Antink in February.

Centrepoint Alliance underwent numerous changes to its leadership team, commencing with the appointment of former Citigroup executive Toby Lewis as chief investment officer in February, followed by the resignation of group executive for investment solutions Mat Walker in August, after close to 13 years with the company.

Subsequently, in September, Centrepoint announced former head of Bridgeport Financial Services Cameron Cogle would join the company as a management consultant to “high-performance firms”.

AMP lost 29 SMSF advisers in a two-month period from December 2016 to January 2017, with at least half of the departed specialists joining non-aligned licensee Akambo Private Wealth; AMP SMSF Advice regional development manager Mark Hannan then left the firm in February.

In September, AMP announced it was “formalising” a relationship with Salesforce and implementing its CRM technology as part of a “cross-border knowledge-sharing” agreement.

Martyn Wild stepped down from his role as BT Financial Group’s chief investment officer in March, following a number of allegations of sexual misconduct during his tenure in the role.

BT also restructured its advice and wealth businesses in the second half of the year to reflect the “rapidly evolving” ways in which clients sought advice.

These changes saw the client-facing business split out and into a newly created advice and private wealth division, helmed by Jane Watts.

The remaining businesses were then moved into customer service areas within the company.

NAB’s MLC Life and MLC Super businesses also enjoyed their fair share of leadership change, with MLC Life appointing Natalie Cameron as chief claims officer in June and Debbie Kennedy as chief underwriter in August, and MLC Super announcing Matthew Lawrance as its new chief executive.

NAB also poached former ANZ Wealth head of professional development – advice capability and assurance Sandhya Maini and ex-AMP New Zealand head of distribution Rich Brown to join NAB Financial Planning as general manager for NSW and ACT and general manager QLD, respectively.

Perhaps the most notable leadership change-up within the big four banks was August’s announcement that Commonwealth Bank chief executive Ian Narev will be leaving the bank by the end of the 2017-18 financial year, following money laundering allegations made against the bank by AUSTRAC.

Commonwealth Bank-linked licensee Countplus appointed former FPA chair Matthew Rowe as the firm’s new chief executive, while Countplus-owned dealer group Total Financial Solutions Australia also appointed a new chief executive in the form of Andrew Kennedy.

In February, IOOF appointed Sharam Hekmat as the business’ new chief information officer, before naming Martin Breckon as head of technical services in March and subsequently locking down Andy Marshall as national manager for alliances in May.

Both La Trobe and Praemium underwent significant leadership changes throughout the year as well, with La Trobe appointing three new executives in what it called a “generational change” in management.

Praemium, on the other hand, saw its board spilled after removing Michael Ohanessian as chief executive. Mr Ohanessian was subsequently reinstated to the role following the appointment of a new board by shareholders.

The year’s biggest mergers

The last 12 months haven’t just been busy for individual moves and changes to leadership structures, with numerous businesses also merging with one another.

Perth-based superannuation funds WA Super and Concept One announced in September that they intended to merge to create a single, $3.2 billion fund, while elsewhere in the super sector AusSuper announced it was selling down its stake in Industry Super Holdings and its subsidiary ME Bank (though remains the largest shareholder in both groups).

Listed managed accounts provider Managed Accounts acquired rival administrator Linear Financial in a move it said would allow the firm to better service IFAs.

“Linear has been a leading provider of platform solutions in the Australian market for some time now,” Managed Accounts chairman Don Sharp said at the time.

“We believe bringing together these two businesses will provide existing and future clients with an enhanced platform and administration services.”

Infocus Wealth Management acquired Charter Financial Planning authorised representative Announcer Group, with the latter becoming co-branded as part of Infocus.

“Announcer becoming part of Infocus provides us with fantastic industry thought leadership, innovation in client service and access to a holistic client service offering covering financial advice, mortgages and property advisory,” said Infocus boss Rod Bristow.

“Announcer helps deliver on our vision of empowering every day Australians to live their best life through convenient access to affordable financial advice.”

Non-bank dealer group Fitzpatricks Group acquired Retirement Victoria, an ANZ-aligned advice firm in Melbourne. The acquisition followed August’s announcement that Fitzpatricks had managed to secure investment from private equity firms Quadrant Private Equity and Yorkway Capital Partners.

Achieving scale and realising the efficiencies and benefits it brings for clients is a central challenge for all professional services providers, particularly those who seek to remain outside of institutional ownership.” said Fitzpatricks chief executive John McMurdo.

“We welcome into the partnership Quadrant and Yorkway, who identify strongly with our vision and the opportunity for Fitzpatricks.”

Associations under pressure

Perhaps the most disturbing story of the year was the spectacular scandal that engulfed accounting body CPA Australia, resulting ultimately in the departure of president Tyrone Carlin and high profile CEO Alex Malley, as well as several board members.

On one level, considering the superior attitude that the accounting profession and its representatives can sometimes adopt in relation to advisers, our audience could be forgiven for wanting to sit back with the popcorn and enjoy the show. An independent review into CPA Australia found significant “conflicts of interest” pertaining to the association and its troubled financial advice licensing division in particular.

The rhetoric surrounding the launch of this business and the “game-changer” it promised to be for Australian financial advice has meant that few financial advisers were upset at the subsequent failure of that business. But on another level, the CPA saga cast a negative light across all the professions and their so-called professional associations, forcing other bodies to assess their governance procedures.

Throughout the year, members of the FPA and AFA have voiced concerns to ifa about the conduct of their association, its increasing closeness to government, adoption of a quasi-regulatory stance and distance from the everyday realities of running a financial advice practice. ifa expects this tension to continue into 2018 and will continue to follow the governance and standards of associations themselves, just as the associations have taken it upon themselves to monitor and regulate their members.


2017 Year in Review: Pleasure and Pain
IFA, independent advice, independent financial adviser, independent financial planner, year in review, 2017, Australian financial services, financial services sector, LIF, FOFA, fintech, mergers and acquisitions
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