As the FSA considers restricting providers from taking financial interests in adviser firms and prohibiting them from determining adviser remuneration, it seems an unlikely scenario.
However, that is the path that the Australian industry has followed and most advisers now operate in dealerships owned by big companies and banks.
There seems to be relatively little concern about the risk of product bias and many believe that even those advisers working under a dealership model offer objective whole-of-market advice.
The Financial Planning Association of Australia, which is largely the equivalent of Aifa in the UK, says 80 per cent of advisers work for a firm owned by one of the big providers.
Chief executive officer Jo-Anne Bloch says clients are offered a broad choice of products and services and ownership of adviser firms does not influence product recommendations.
She says: “As financial planners, you have a duty to your client to put the best product on the table that suits your client. If the institution that owns your company has a product that is good for your client, that is fine, but I think you will also find that a lot of financial planners use a range of products depending on the needs of their clients.”
Bloch says there is absolute up-front disclosure so clients are clear about what is being offered to them and why.
Suvan de Soysa, a founding director of adviser firm IPAC, which is now owned by Axa, says the UK IFA market is not strong enough to move the industry forward. He says: “The cornerstone of good advice is strong, financially-backed institutions that have the technology, the investment in people, the processes and the compliance to be able to pull together integrated solutions.”
But independent adviser firm A Clear Direction Financial Planning and Portfolio Management says an independent model offers good value for clients.
Principal Scott Francis says its advisers do not accept any commission from providers or offer their own branded products. He says: “This puts us very clearly on the same side of the table as clients. The only reason we would recommend any investment or product is because we think it is best for the client, not because it is paying us higher commission or there are any other benefits for us.
“Possibly because there are so few truly independent firms in Australia, they tend to focus on high-net-worth clients and therefore a large number of people are left behind in that structure.”
Francis says the reason so many formerly independent adviser firms have been bought by banks and life companies is because their value is exceptionally high.
He says: “These firms are often priced on multiples of four to six times revenue. If you build up a reasonable sized firm that is turning over $400,000 revenue, the incentive to sell it to a financial institution is high.”
Centric Wealth Advisers joint chief executive officer Mike Pillemer says: “In the Australian marketplace, you have got something like 50 per cent of advisers who are looking for a succession strategy and are retiring over the next five years, so what has happened is that the big institutions have not had the distribution but they have the capital, so you have had this scenario going on where they have been buying distribution.”
De Soysa says there is a greater focus in Australia on holistic planning rather than investment-led advice.
He says: “The conversation about investments and products is important but it comes in much later in the conversation. When you have that conversation with a typical UK IFA, it is about investments, products and tax wrappers. You get an investment product focus where it is about getting a tax benefit, charging the client a fee and then you go back and look at it periodically.”
De Soysa says he believes that holistic planning exists in private banks and some niche firms in the UK but stresses that there is a long way to go before the approach becomes widespread.
In the UK, Sifa managing director Ian Muirhead believes this is not confined to a few firms and that the top 20 per cent of advisers provide holistic planning. He says the UK industry places more emphasis on professionalism and eradicating product bias because of the poor reputation that advisers have in the public eye.
He says: “In Australia, they are not trying to drag themselves out of the mire of misselling scandals, so they do not have such a big hang-up on professionalism.”
Norwest Consultants principal Harry Katz believes the Australian market cannot be compared with the UK because the population is much smaller. He says: “IFAs in Australia do not have access to the sort of constituency that we do, which means they have to work for big institutions. Saying the UK needs to go the same way is rubbish.”