Outlaw vertical integration says AIOFP

The Federal Government has been urged to eliminate vertical integration in the financial services industry, with the Association of Independently Owned Financial Professionals arguing that it represents a failed structure.

As well, the AIOFP has warned of a situation developing where financial advisers are tempted to venture outside their skill set by venturing into product manufacturing.

In a letter to Parliamentarians, the only concession the AIOFP has been prepared to offer is that existing vertically integrated business models should be grandfathered.

“Now that most Institutions have been embarrassed out of Adv ice by the Royal Commission findings and most have recently declared they are not venturing back into advice, now is the time to ban vertical integration [but grandfather existing operators],” the letter said.

“It is also time for Canberra to retract its massive overreach into the advice industry over the past 14 years, this intrusion has now come to the point where operating a profitable advice business is becoming problematic.”

Both issues need to be addressed simultaneously to ensure sufficient independent Financial Advisers [Advisers] remain in circulation to assist consumers.

“Nowhere else in the civilised world does Government prescribe and mandate how business should charge consumers. Furthermore, the Royal Commission findings into the behaviour of the major Banks with their ‘fees for no service’ rorts has seen the Banks retract from the advice industry only to leave a raft of draconian compliance measures [designed to control the banks] for the independent sector and consumers to deal with.”

“This has greatly escalated the cost of advice where consumers and Advisers are paying for it. In addition, the Life Insurance Framework [LIF] legislation is an unmitigated disaster for all stakeholders [especially consumers] that also needs amending.

“It should be noted that the greatest losses to consumers over the decades has been the failure of product manufacturers NOT advice, and product manufacturing failure is in the domain of Institutions/Banks NOT Advisers. Unfortunately, the Institutions and Regulators over the years have cleverly and unfairly spun the cause of product failure onto the Advice community in their efforts to avoid accountability.”

“It is time for Canberra to understand these facts. Canberra must also understand that the independent Advice sector is now the overwhelming dominant portion of the Advice community and if they cannot operate a profitable business, severe ramifications will result.”

“The first obvious negative outcome are independent practices disappearing from the landscape if they cannot make a profit. Market research through NMG indicates there are only around 11,500 genuine Advisers left, if most of these are financially starved out of the industry there will be a massive vacuum and unlikely to ever recover with the current legislation and conditions in place.”

“The other concerning trend are Advisers readjusting their business model trying to capture a share of the manufacturing margin to support their practice’s profitability, besides for being potentially conflicted it is dangerous for consumers that some Financial Advisers are venturing outside of their skill set,” the AOFP letter said.

“The recent Dixon Advisory collapse is a prime example of Advisers venturing into the manufacturing space to capture margin but lacked expertise leaving a $332 million black hole for their clients. The Dixon Executives clearly did not have the manufacturing expertise, they should have just stayed with Advice.”