A leading financial services regulation lawyer has claimed the Australian Securities and Investments Commission's (ASIC's) true motivation behind its omission of vertical integration in its recently released FOFA conflicted remuneration guidance is an agenda against smaller licensees.
Speaking to InvestorDaily, Baker & McKenzie partner Bill Fuggle said the industry regulator's failure to include the issue of cross-subsidisation by vertically integrated groups is indicative of its underlying agenda for the financial advice industry.
"I don't see how ASIC could have possibly overlooked the issue of vertical integration. It has clearly been raised with ASIC on several occasions by different stakeholders," he said.
"Rather, it seems that ASIC has made a deliberate attempt [in its conflicted remuneration guidance] to consolidate market share and power in favour of large vertically integrated market players. In other words, a deliberate attempt to squeeze out the non-vertically integrated players.
"The FOFA reforms and stand on conflicted remuneration in particular are positioned as some sort of attempt to even the playing field when, in fact, there is a deliberate move going on to tip the scales in favour of the bigger players and squeeze out the boutiques and smaller players [in the financial planning industry]," he said.
Describing the activity of providing incentives - via distribution or fee reductions - for advisers to recommend the products of a parent company as "unfair and inappropriate," Mr Fuggle said the trajectory of the financial advice industry was towards a 'barbell outcome'.
"The expectation is that post-FOFA, investors in the middle will struggle to get quality advice," he explained.
"Obviously the high-net-worth investors will be willing and able to pay fee for service and the lower end of the market will rely on free internet-based so-called 'advice' or information, while the middle are squeezed out - the barbell outcome."
Mr Fuggle said ASIC's decision to stay quiet on the practice would foster the development of the 'barbell' outcome at the expense of the quality and accessibility of financial advice.
The comments follow a report by InvestorDaily's sister title ifa yesterday, in which Don Trapnell, director of dealer group Synchron, expressed his dismay at ASIC's silence on vertical integration.
"It is our understanding at least one institutional licensee is actually offering reductions in dealer fees to any adviser who writes 80 per cent of their business with a life insurance provider from within the same network," Mr Trapnell said.
"Here we have financial advisers who are being given a very strong financial incentive to place the majority of their business with one life insurance company, irrespective of their clients' needs and irrespective of the merits and features of the product."
