Out and about last week, I heard an interesting theory on how to eliminate the numerous conflicts of interest many dealer groups have: get rid of dealer groups and in their place let financial planners be independently licensed.
It was an unpopular idea, but perhaps not one without merit.
Running a dealer group is expensive. Most are being subsidised by fund managers through platforms, rebates and other ‘conflicted’ means.
However, for the regulator to pick up the administration of 15,000 planners is probably not going to appeal.
The Australian Taxation Office is already struggling with the number of self-managed super funds (SMSF) it has to administer and this would be a similar logistical nightmare, albeit for a different regulator.
It would transform the financial services landscape in an interesting way.
While eliminating dealer groups would remove some conflicts of interest and, according to research, may make more people trust financial planners and seek advice, the reality would be different.
Currently, the big dealer groups offer some sort of safety net for investors and financial planning clients.
Without the backing of the big boys, such as Westpac, Commonwealth Bank of Australia and Colonial First Stat, maybe clients wouldn’t feel as secure placing investments through smaller, independent planners.
The cost of advice is likely to increase greatly and that will put it out of the reach of many potential clients.
However, it was an interesting thought to ponder and with the proliferation of SMSFs and trustees being more used to dealing with accountants and their regulatory system, perhaps some people would be equally comfortable with advisers who hold similar licences.
Perhaps it will take the new generation of advisers to want a change to the system – those who do not want their licences to be held through a dealer group, which is only as reputable as its least reputable member.
