Regulatory action, including the Future of Financial Advice (FOFA) and the Strong Super System reforms, will reduce total margins across the financial services value chain by 50 to 100 basis points, according to Vanguard.
"There is the broad conversation about extracting costs out of this value chain, in the region of between 50 and 100 basis points. That will come out of one of four areas, largely the investment manager, platforms, dealer groups and the advice businesses themselves," Vanguard Investments senior investment analyst Paul Chin said.
Chin, who spoke at a Financial Services Institute of Australia seminar yesterday, said margins had come under pressure as financial planners had to review the value of their services, while investors were also more aware of costs.
"Whether it is FOFA or the Cooper review, if you think about any of those sorts of regulatory changes, there is a lot of discussion about trying to think about the relative simplicity, trying to think about the relative costs. There is real pressure on financial planners and thinking about their value propositions," he said.
"On the other side, we have got investors that have come out of the financial crisis who are sensitive to fees and are really well educated.
"APRA (Australian Prudential Regulation Authority) under the Cooper reforms has been nominated as essentially a depository for both after-tax reporting and fees, so this is going to be really interesting from the viewpoint that clients will come to the doorstop of financial planners, where they are able to compare the cost of financial planners versus a plain vanilla limited advice industry fund. That is going to have a real effect on margins."
