The Investment and Financial Services Association (IFSA) is pushing the barrow of Australia’s top 100 dealer groups to calm the fears of retail investors rattled by market turbulence.
However, it also admits that asset and client management systems such companies use can be “prohibitively expensive”.
In a paper ‘An insight into the structure and operation of Financial Advisory Networks’ released today, the peak body argues that regulation has made it impossible for non-institutionally aligned financial planners to operate without dealer groups, which IFSA wants renamed Financial Advisory Networks (FAN).
It said investors should feel confident in the benefits of scale used by more than 15,000 financial advisers who are part of these conglomerates.
“Often overlooked and of particular value is the special role FANs play when markets hit difficult periods,” IFSA chief executive Richard Gilbert said.
“Advisory networks can help ensure that investors make informed and rational decisions when turbulence hits or there is a market downturn.”
An adviser needs to have at least $60 to $80 million in funds under advice to justify the high cost of running their own licence.
One bank-owned financial services group recently spent in excess of $200 million replacing its front and back office systems while a larger independent FAN spent $10 million building a front-end system, IFSA claims.
It said the proliferation of investment products over the last decade means planners cannot maintain the range of a preferred product list without the resources of a FAN.
“My time on the board of the Financial Industry Complaints Service certainly served to convince me of the value of having an organisation that will stand by the consumer if there is a failure somewhere in the advice process,” Gilbert said.
ASIC announced in November that it is conducting an investigation into the retail investment industry in the wake of a series of property development collapses that cost retirees around $1 billion in lost savings.
