The revolution in financial advice, which started with the FoFA reforms and continued under the Professional Standards reforms, will be accelerated.
There was no recommendation aimed directly at limiting vertical integration but the Commission’s focus on conflicts of interest may require changes to policies in this area. Changes will be felt first in adviser practices and then by advice licensees/dealer groups and also by product manufacturers and distributors.
The recommendations will accelerate the forces of change already reshaping the industry that collectively amount to a revolution.
Implications for adviser practices
- The combination of removing grandfathered commissions, the potential reduction (to zero) of life insurance commission limits, restrictions on advice fees that can be paid out of superannuation accounts and enhanced annual opt-in requirements for all ongoing fees, could reduce the value of advisers’ practices, removing much of the goodwill that exists in the back book and accelerating the move towards the front book fee for service model.
- These factors, coupled with new professional standards and training obligations are likely to accelerate the departure of advisers from the profession, particularly where buyer of last resort or “BOLR” arrangements are in place.
- Advisers who have already transitioned to a fee for service model and more efficient advice delivery methods will be less impacted and will enjoy a competitive advantage. There will be opportunities for innovation in the delivery of advice through fintech and other more efficient advice delivery models.
Implications for product manufacturers and distribution
- These changes will continue to drive up the cost of personal advice and could further reduce the number of consumers willing to pay high up-front costs for advice. For product manufacturers, in-flows through personal advice channels may weaken over time, which should drive further innovation in distribution models.
Implications for advice licensees/dealer groups
- The increased compliance burden and its cost is likely to drive further consolidation.
- All AFSL holders will be required to investigate misconduct of a financial adviser and inform and remediate clients where misconduct is identified. This requirement and the possible removal of the “safe harbour” provision will require licensees to enhance their monitoring measures for representatives. A much sharper focus on investigation, compensation and breach reporting will be expected.