Regulatory reform in the Australian financial services industry could lead to the demise of sole practitioners and the introduction of independent financial adviser partnerships, according to Pershing Advisor Solutions.
The ban on commissions will result in independent financial advisers moving from selling wealth management products to becoming buyers of these products, and this will prompt advisers to join forces to influence the pricing of these products.
"What the elimination of commissions is reflecting is that the advisory world is moving to a profession where financial professionals are also becoming professional buyers on behalf of their clients," Pershing Advisor Solutions chief executive Mark Tibergien told InvestorDaily.
"Because their compensation is going to be more aligned with their clients, they are moving themselves into the position of becoming client advocates as opposed to product advocates."
Tibergien said he predicted that would push non-aligned advisers to team up to create partnership-style businesses.
"Historically, independent financial professionals have been micro-businesses," he said.
"Regulatory requirements, economics and the need for expertise are going to make it very difficult for people to operate as sole practitioners and so what you will probably see is still small businesses, but more likely amalgams of small financial professional practices operating under a common strategy, like accounting firms or law firms.
"One of the advantages is that it gives firms some negotiating leverage, but more importantly it gives these independent firms the opportunity to brand and differentiate from the large captive organisations."
The partnerships of independent advisers were likely to form strong competition for the large institutions, he said.
"Financial services firms pursue scale, but there is a point where scale becomes too big," he said.
"What will eventually happen is that they are feeding the monster that will eventually feed them; they will lose their purpose, there is a constant pursuit of growth of profits that distracts people from their primary mission."
Tibergien will speak about the regulatory impact on the financial services industry at the Australian Custodial Services Association conference to be held in Sydney later this month.
