Questions have been raised over whether the Australian Securities and Investments Commission's (ASIC's) RG 246 Conflicted remuneration guidance is part of an 'unofficial policy' to drive vertical integration within the industry.
There is a question over whether the government has a preference for a more vertically integrated industry, Tria Investment Partners managing partner Andrew Baker wrote in his latest Trialogue commentary.
RG 246 contains no mention at all of vertical integration within the industry, aside from one reference in the appendix definitions. "RG246's silence on the issue of vertical integration has led some to conclude that this cannot be accidental," Mr Baker said.
"Is there an unofficial policy to encourage vertical integration of the wealth management industry?" he asked.
The rise of platforms from the mid-1990s created strong incentives to vertically integrate by acquiring advice businesses for distribution, and adding a multi-manager asset management capability, according to Mr Baker.
Most retail distribution is now institutionally owned and diversified funds management is dominated by in-house asset managers.
With regulation putting pressure on business models, vertical integration has often proved easier than drastic changes of strategy. For example, the ban on dealer group rebates "eliminated large swathes of the independent planner channel, which found it easier to sell than restructure," according to Mr Baker. Much regulation of the past five years has pushed the industry towards further vertical integration, he added.
"[The government] clearly wants a more consolidated industry with fewer and larger players," Mr Baker said.
This can be seen by policies such as the scale tests in MySuper and auto-consolidation requirements, he said.
"With strong market and regulatory forces at work, you don't need to make a case for a vertical integration conspiracy theory. But the government does not appear particularly worried about it either. Why the insouciance?" he asked.
Compared to a fragmented industry, vertically integrated institutions will be easier to police, and in the event of another Storm Financial-type incident, to hold to account and secure compensation from, he said.
Financial Services lawyer Claire Wivell Plater, managing director of The Fold Legal, agreed that the RG 246 changes would increase a push towards vertical integration.
"The guidance on conflicted remuneration is very onerous. I genuinely don't see how independent licensees can compete, it's going to be very hard for them," Ms Wivell Plater said.
If Future of Financial Advice reforms were supposed to drive financial advice independent of product incentives "surely that outcome is not the outcome the government wants," she said.
"Why would the government want to move towards vertical integration when the potential for conflicted advice is so huge?" she asked.
"I'd have thought the way these regulations are being implemented should be in a way that encourages independent ownership of advice businesses, rather than discouraging it."
