Australia's privately owned financial services sector has been negatively impacted by a lack of debate between industry and the government around legitimising the vertically integrated model, an industry executive said.
"They're legitimising an end-to-end, vertically integrated model but what about if you don't play end-to-end, how are you going to compete with the banks subsidising when they feel like it?" SFG director Tony Fenning told InvestorDaily.
"What I think is going to happen is a relatively profound change for the middle market, in particular, what we've always known as independent dealer groups.
"If anything, it's going to be more severe than less severe."
Most debates have been around the minutiae of how regulatory change will impact commission flow instead of the missing competitive issue, which is disregarded, he said.
"There's a fundamental change that comes from the way in which the removal of volume-related payments impacts the industry, that is, if you're a small business trying to become medium or a medium business trying to be large, how are you going to get any benefit from scaling yourself up?
"People not liking the form of those arrangements, they're missing the actual role of when they're legitimate [because] what the role of that is just pure scale as you would get in any other industry."
Entrepreneurs who build and innovate cannot be rewarded unless they are aligned as there are "so many barriers to entry that you can't scale yourself up as you go", Fenning said.
"We've got to relook at the capital and the licensing arrangements, specifically to allow people to legitimately leverage up scale," he said.
"Secondly, we've got to allow more than one business model."
Fenning said he is worried about what the industry's structure will look like in the future if there already is a severe lack of competition.
"In one or two years' time we'll wake up and think, 'gee there's not many competitors left in this space'," he said.
"I don't know if that's anyone's intention from a regulatory perspective but I don't think it's a good outcome for employment, for competition and for clients."
