Licensees may have to increase fees to advisers as a result of opt-in, its code-of-conduct alternative and other aspects of the federal government’s advice industry reforms, according to industry participants.
Synchron director John Prossor said the industry remained stuck in a zone of uncertainty despite the passage of the Future of Financial Advice (FOFA) measures through the House of Representatives last week.
FOFA passed after a last-minute amendment allowing advisers to choose between opt-in and an ASIC-approved code of conduct.
“All we’ve done is move from legislation to regulation,” Prossor said.
“I’m not sure what it’s achieved. There’s still no clarity. It reads as though ‘we only accept codes of conduct that include opt-in’.”
Opt-in would require advisers to get clients to sign new agreements every two years. Many in the industry have argued it adds to the cost of running advice practices, threatening to wipe out an already shrinking number of independent dealer groups.
AMP and the four major banks are vertically integrated, offering a full suite of financial products as well as advice.
Prossor said independent companies forced to compete with large vertically integrated organisations could face tough decisions.
“It does become more challenging. FOFA may affect the cost that the licensee has to charge the advisers,” he said.
The Corporate Will Company adviser Adam Smith said advisers would likely pass the higher costs to clients or stop doing business with certain client sectors that did not contribute enough revenue.
“One of the greatest travesties of FOFA would be if we lost independents in the industry because of the costs of running their businesses,” Smith said.
“What we are seeing is that far more advisers are becoming aligned with the big licensees, such as the MLCs and AMPs, and the mid-tier licensees are going to find it increasingly harder to operate.”
However, MyAdviser managing director Philippa Sheehan said she was disappointed the opt-in provision had not been kept in as it was initially proposed by Financial Services and Superannuation Minister Bill Shorten.
Sheehan said cost was not a concern; cleaning up the industry from within was the target.
“Unfortunately, what we’re going to have now is we’re going to have so-called professional associations come out with, perhaps, Mickey Mouse codes of conduct to get around the opt-in provisioning, and that is only going to be worse for our industry,” she said.
