Print Post Approved PP255003/00299
Vol.25 No.14 | April 21, 2011 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
TRIO COMPENSATION EXCLUDES SMSFS: Page 5 | TARGETING THE RIGHT AGE GROUP: Page 24
FOFA reforms threaten smaller players By Mike Taylor THE Federal Government’s Future of Financial Advice (FOFA) changes carry with them the genuine risk of benefiting the big banks, institutions and industry funds at the expense of mid-sized dealer groups and independent financial planners. That is one of the key concerns to emerge from a Money Management roundtable with five senior players in the financial planning and funds management industry: Fiducian managing director, Indy Singh; Count Financial chief executive Andrew Gale, Colonial First State general manager of distribution Marianne Perkovic, Fidelity Investments chief executive Gerard Doherty, and Association of Financial Advisers chairman Brad Fox.
Each of the participants expressed concerns about the potential for unintended consequences to flow from measures such as the banning of volume rebates, with Gale saying he believed the Government really needed to work through the implications of its intended actions. “I think some of the out workings would be that it would confer additional power to the vertically integrated organisations in the market,” he said. “It would also have a greater degree of disruption. “I think some of the large licensees are well positioned to deal with that because they would basically change their business models – and especially looking at taking on platform manufacture or responsible entity type roles,” Gale said.
Andrew Gale However, he warned that while larger licensees might be able to accomplish such a strategy, he believed smaller to mid-size entities might find it more of a challenge. “So I think a likely consequence if you went down the
purist model route is some industry consolidation and arguably the diminution of independence of advice in the marketplace, which I don’t think would be a great outcome,” Gale said. “That’s not to say that’s not the path that the Government will or won’t go down ultimately but I think they really need to go in eyes wide open regarding what some of the flow on consequences are.” Perkovic also urged the Government to move on any legislative changes with its eyes wide open. “Without rebates and clarity around whether white label payments are included, the advice businesses will become product manufacturers. You will then have people whose core competency is to give advice and run the licence now having to be a product
manufacturer,” she said. “There are some businesses like Indy’s that have done that and can do that, but there’s a lot of other businesses that don’t have that capability. So it will either lead to consolidation or a whole group of businesses running these products. “If you have a think about what’s in the best interests of the clients, are they better off to have been an advice giver who got a rebate or an adviser that’s now become a product manufacturer? I think that would be a greater risk. So post FOFA and if rebates go, that will be the discussion we’ll have: is the industry reinventing itself, and are more product manufacturers coming?” Perkovic asked. To read the complete FOFA roundtable , turn to page 14.
Mercer targets retail research Differing views about ‘best interest’ options
By Chris Kennedy
GLOBAL institutional investment consultant Mercer is looking to increase its competitive presence in the Australian retail research market by leveraging its institutional resources. Gone are the days when research houses could just hand out passwords – they now need to be proactive when it comes to communicating new opportunities and avoiding the blow-ups, according to Mercer head of wealth management for Australia and New Zealand Brian Long. The problem with local research houses is they can’t make money unless they charge for ratings or push product, Long said. Mercer already rates 22,000 funds through its work in the institutional space, and just needed to map that for dealer groups, he said. “Things happen in insto first, and then they come to retail,” he added. Specifically, Mercer would be targeting larger dealer groups and private banks. Mercer already provides research for Macquarie’s global business, Credit Suisse, Deutsche and AXA, among others, he said. Mercer believes its offering is aligned with other large retail wealth managers such as AMP and ANZ, and is in close negotiations with further groups, Long said. Dealer groups are facing huge issues around consolidation, and if they’re looking to merge, Mercer has experts on product and platform rationalisation who could assist in that overall process, he said.
By Caroline Munro
Brian Long These kinds of groups also want assistance with platform and product design to help move up to the high-net-worth space, and support for adviser education systems and academies including tools, research portals and webcasts, Long said. Potential changes to the income tax regime could make it more attractive to invest in overseas domiciled funds if the requirement to pay tax on unrealised capital gains is reduced. This means Mercer would be well positioned to advise on overseas funds that local researchers would not have looked at previously, Long said. Continued on page 3
THE Treasury’s two ‘best interest’ duty options, offered up to the Future of Financial Advice Peak Consultation Group for discussion, have been met with a mixed response. Treasury proposed two ‘best interests of the client’ options last month. The first option was: “To act in the best interests of the client and, if there is a conflict between the client’s interest and the interest of the person providing personal advice or the providing entity, to give priority to the client’s interest”; while the second option was: “To have proper regard to, and act in accordance with, the interest of the client and place the interests of the client above their own interests and the interest of the providing entity.” Chief executive of the Financial Services Council (FSC), John Brogden, explained that the first option was outcomes-based, while the second option was process-based. He said the FSC preferred the second option because it meant that advisers as well as clients were protected by standard steps of practice, whereas the first option meant that what was in the best interests of the client was subjective and harder to assess. Chief executive of The Trust Company John Atkin said the industry needed to
adopt a fiduciary duty obligation if it wanted to be seen as a profession. He said the first option, however, was the less compromised of the two, while the second option confused the issue because ‘best interests’ was not about the quality of advice. “Fiduciary obligation is focused on avoiding conflicts of interest,” he explained. “The second option focuses more on the premise that if you’ve given them the correct advice, then it doesn’t matter – the adviser will always be at risk of being compromised because of their personal interest.” Financial Planning Association (FPA) general manager of policy and government relations Dante de Gori said the FPA was reserving its judgement, because no detail had been given whether a best interest requirement would be imposed on licensees. However, he said the FPA was conscious of the direction going towards a duty of ‘best advice’ as opposed to a duty of ‘conduct’. De Gori said the original intention was that advisers should always be placing the interest of the client ahead of their own. Whether the adviser adhered to a reasonable basis for advice was already covered by other legislation and should not be the focus, he said. Continued on page 3