Perceived conflicts of the Future of Financial Advice (FOFA) reform’s best interest duty in tied distribution models has resulted in advisers switching to non-conflicted licensees.
“As a fee for service and non-aligned licensee we are already FOFA ready in fact, we are already benefitting from many advisers that have been disenfranchised by perceptions of anti-best interest practices in tied distribution models that have come across to us,” Australian Unity Personal Financial Services head of financial advice Craig Meldrum told InvestorDaily.
“In a lot of the licensees that are owned by the banks, advisers have a defined list of what they’re able to advise on, which might include one platform for example. It also affects the industry funds.
“If [the products] are not in the best interest of the client, obviously the adviser has a dilemma to perform the best interest duty.” The fear of not being able to meet the best interest requirement had resulted in advisers searching for alternatives, Meldrum said.
The latest half-dozen advisers that had joined Australian Unity had all raised concerns for best interest and had come from various tied licensees, he said.
A “good number of advisers” had called in and there were expectations for more to join, Meldrum said.
“There’s a lack of direction,” he said.
“A lot of licensees don’t absolutely know what the final look and feel of FOFA’s going to be so without any top-down direction, particularly from the larger licensees to their adviser groups, it’s driving bottom-up fear in the actual application of the FOFA requirement.”
Asked whether tied licensees would sacrifice adviser numbers ahead of delivering a solution, Meldrum said: “There’s always an aspect of ‘protecting the patch’ particularly when there’s a perception of the damage that can hit a brand or a business as a result of applying best interest.”
He said he was sure the tied distribution environment, particularly industry funds, would look to implement rules or disclosures to counter best interest conflicts but it was still too early for tied models to adapt to the duty.
“As an adviser, if you’re able to show you’re able to do everything they possibly can in a client’s best interest without any conflicts, that will be the mark of absolute independence and professionalism,” he said.
