Guide to Future of Wealth Management

Guide to

Future of Wealth

Management Principal Sponsor

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Editorial

What will advice look like post-2025?

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n the wake of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the Financial Adviser Standards and Ethics Authority (FASEA) regime and the exit of the banks and major institutions from wealth management, the Australian financial planning industry will never be the same again.

Between now and 2024 much will happen to ensure that financial advisers play to a very different set of rules to that which has prevailed in the industry over the past 20 years, with one of the key dates being the end to grandfathering in 2021.

This Money Management guide attempts to look at the factors which are impacting the future of wealth management in Australia and gain insights for those who are trying to devise the strategies with which to navigate the changes over the next half-decade.

If one thing particularly stands out, it is that the relationship between advisers and their licensees will change and, because of this, the commercial underpinnings of dealer groups will also need to change.

Then, too, the focus of the regulator, the Australian Securities and Investments Commission (ASIC) and its inter-relationship with FASEA will be vital, together with the role of industry/professional bodies such as the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) as code-monitoring bodies.

Financial advice in Australia is facing a new future. The legislative/ structural framework is largely in place but how it will actually look and feel remains a work in progress.

Mike Taylor Managing Editor

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Contents 03

Editorial 08

Future of Advice – new game, new rules

16

Why advisers and clients are choosing managed portfolios

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Contents 18

Helping clients navigate changing markets

20

A UK experience of financial reform 26

The end of the ‘great banking adventure into wealth management’ GUIDE TO FUTURE OF WEALTH MANAGEMENT | MONEY MANAGEMENT | 5

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About the publisher FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000 Managing Director: Mika-John Southworth Tel: 0455 553 775 mika-john.southworth @moneymanagement.com.au Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au News Editor: Jassmyn Goh Tel: 0438 957 266 jassmyn.goh@moneymanagement.com.au Senior Journalist: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Marketing Manager: Odette de Souza Tel: 0404 439 000 odette.desouza@financialexpress.net ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@financialexpress.net

Launched 32 years ago, Money Management has firmly established itself as the leading source of news and analysis for Australia’s financial services sector.

In this time, Money Management has rapidly evolved from a B2B newspaper into a respected provider of accredited education and training, research, professional support and advocacy as well as thought leadership in the financial services space.

While it remains the most-read print and online publication by financial planners in Australia and is widely recognised as a leading advocate for this profession, Money Management's growing audience is a diverse one that also includes fund managers, accountants, risk advisers and superannuation fund trustees.

Money Management is also the clear publication of choice for finance institutions – both domestic and international – seeking to connect with the high-earning and well-educated professionals working in Australia’s financial services sector.

PRODUCTION Graphic Design: Henry Blazhevskyi Subscription enquiries: www.moneymanagement.com.au/ subscriptions Money Management is printed by Bluestar Print, Silverwater NSW. Published fortnightly.

All Money Management material is copyright. Reproduction in whole or in part is not allowed without written permission from the editor. © 2019.

Supplied images © 2019 iStock by Getty Images. Opinions expressed in Money Management are not necessarily those of Money Management or FE Money Management Pty Ltd.

FE is a financial information and communications company founded in the UK in 1996.

It has offices in Australia, India, Hong Kong, and the Czech Republic. It provides data, software, research, and ratings to help asset managers and financial advisers make better investment decisions.

ACN 618 558 295 www.financialexpress.net © Copyright FE Money Management Pty Ltd, 2019

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Future of Advice

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Future of Advice

Future of Advice – new game, new rules Mike Taylor writes that the Australian financial advice industry is embarking on a transition which will be completed in 2024 with the result that it will be very different to the industry which existed by the Royal Commission and the Financial Adviser Standards and Ethics Authority regime.

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ill the Australian financial planning industry follow the model which has evolved in the US? Will it follow the model which has evolved out of the United Kingdom’s Retail Distribution Review (RDR)? Or will it evolve its own model, drawing on many elements and overseas experiences?

Ask CountPlus chief executive and former Financial Planning Association (FPA) chairman, Matthew Rowe, and he will point to a future industry heavily influenced by the synergies of accounting and financial planning. Ask Bell Financial Group’s, Arnie Selvarajah, and he will point to the US experience.

Ask former dealer group chief executive and current AdviceIQ board member, Paul HardingDavis, and will point to Australia developing its own hybrid in recognition of the almost unique combination of commercial and regulatory realities confronted by industry participants.

For CountPlus chief executive Rowe, the challenge for the financial advice sector is to

find a new model capable of carrying through the current transitionary period and beyond.

For CountPlus, which recently acquired Count Financial from the Commonwealth Bank, that entails an accounting/planner model and an equity ownership (owner/driver) approach.

The biggest news to hit the Australian financial industry in the past two months has been the changed strategy announced by AMP Limited and the Commonwealth Bank’s announcements spelling its substantial exit from aligned advice, particularly its decision to undertake the gradual wind-down of its Financial Wisdom business.

But for Bell Direct’s Selvarajah the AMP announcement is significant because, in many respects, it represents the implementation of a model that has been evolving in the US financial planning industry for some time – a tiered approach starting with self-direction Continued on page 10

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Future of Advice Continued from page 9 and channelling, where necessary, into holistic advice.

“There are basically three components to what they are talking about – three tiers – self directed for the mass market [delivered via] online, call centres and which is very much general advice.

“Then tier-two is ‘on-demand advice’ centred around life events such as a house purchase, life insurance and family trusts which doesn’t necessarily give rise to the need for a Statement of Advice (SOA) and then the third tier which is full advice and an SOA,” Selvarajah said.

He said that there were also possible permutations of the AMP model which might be included somewhere between tiers one and two, which entailed co-delivery of advice involving both technology and physical advisers – “that is using robotype technology but with an adviser involved in helping the client understand what strategic asset allocation they need.”

Selvarajah likened it to the managed accounts model which was being deployed by Bell Direct and others and which was dominant in the US. He said the end-game was that the role of advisers changed from choosing specific assets to one of strategic asset allocation reflecting the objectives of the client.

Selvarajah said he believed that, in similar fashion to what had occurred in the US, this meant that the nature of advice would also change with advisers focused on the frontend of the process – strategic asset allocation – rather than where they are tending to focus at the moment, the asset selection process.

“Now in a lot of the conversations that are held today that is where advisers believe their value proposition resides but in the US advisers have been outsourcing that investment advice piece and saying [to clients] it is more important for me to work out your asset allocation rather than where it is going to,” he said.

Selvarajah believes that this type of shift in service provision is likely to give rise to improvements for advisers, not least in lessening the regulatory compliance load because the back-end had been automated and taken care of.

So, what is the role of the dealer group?

Not unlike Harding-Davis and Rowe, Selvarajah recognises that because of factors such as the Financial Adviser Standards and Ethics Authority (FASEA) regime, the ending of grandfathered commissions and the eventual individual registration of advisers, the dealer group model has to change.

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This information is provided by Antares Capital Partners Limited (ABN 85 066 081 114, AFSL 234483) (ACP), as the Responsible Entity of the Intermede Global Equities Fund (Fund). ACP has appointed Intermede Investment Partners Limited (‘Intermede’) as investment manager of the Fund. The Fund is a managed investment scheme through which an investor’s money is pooled together with other investors’ monies to buy investments which are managed on behalf of all investors. The Fund invests in an actively managed portfolio of equities listed on share markets around the world. When you invest in the Fund you acquire an ‘interest’ in the form of units of the Fund rather than ownership of the underlying assets of the Fund including securities issued by companies. Any references to specific companies are for illustrative purposes only and should not be taken as a recommendation to buy, sell or hold securities in these companies. Whilst it is consistent with the Fund’s current investment strategy to invest in global companies, there is no guarantee that the Fund will continue to hold securities of, or any other investment in, any company mentioned herein after the time of publication. The companies named herein have provided necessary consents, however they do not constitute or imply any association or business relationship including but not limited to partnership, sponsorship with or endorsement of the information provider or information provided herein. ACP is a member of the group of companies comprised of National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686), its related companies, associated entities and any officer, employee, agent, adviser or contractor therefore (‘NAB Group’). An investment in any product or service referred to in this advertisement does not represent a deposit or liability of, and is not guaranteed by, NAB or any other member of the NAB Group. This information may constitute general advice. It has been prepared without taking into account your objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. You should obtain a Product Disclosure Statement (PDS) relating to the financial product mentioned in this communication issued by ACP, and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the PDS is available upon request by phoning 1300 738 355 or on our website at nabam.com.au.

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Future of Advice Continued from page 10 However, he sees it evolving from an adviser-focused model to a client-focused model.

“Today the dealer group is very much focused on the adviser as a client but I am wondering whether the better dealer groups will recognise the need to target the client and therefore flip their business model to become the client advocate,” Selvarajah said.

He said this would be in the context of monitoring the client’s adviser to ensure that they were delivering in meeting the client’s objectives.

While he sees significant change coming to the dealer group model, Harding-Davis believes that the transition will occur between now and 2024 when the full implementation of the FASEA regime will have occurred and when financial planners will be minimum degree-qualified, individually registered to practice and be members of a codemonitoring body.

Harding-Davis said that when this occurred the nature of the relationship between advisers and licensees would need to change simply because the licensee would not need to be seen to be ‘authorising’ and adviser in the same context as they do today.

He said the relationship was more likely to be that of the dealer group servicing model within which the advisers joined dealer groups for the purposes of practice management and service provision, rather than an authority to practice.

Selvarajah agreed with this analysis, but said it was not inconsistent with the model

which had evolved in the US. Association of Financial Advisers (AFA) chief executive, Phil Kewin, said he expected licensees would continue to play a role, but the extent of that role would depend on how code-monitoring and licensing played out.

He said, however, that there would need to be someone who provided the ‘aggregation of support’ that was currently being provided by licensees but we might see new models arising where some smaller licensees could provide the same arrangements.

Some key players are not waiting for the situation to evolve and have already set up structures to accommodate the changed environment, not least ClearView with the launch of its LaVista Licensee solutions – an entity intended to deliver back-office infrastructure and support for self-licensed advisers.

According to LaVista chief executive, Mike Pope, self-licensed firms have recognised the mounting costs of regulation and opted to pursue an outsourced solution.

The pragmatism which underscored the Continued on page 14

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Future of Advice Continued from page 12 CountPlus acquisition of Count Financial was reflected in the fact that it was predicated on the belief that dealer group services were expensive and that, ultimately, some member firms might vote with their feet.

The consultants’ report utilised by Rowe at the extraordinary general meeting which approved the acquisition of Count Financial baldly state: “It is expected that there will be a repricing of licensor services in the market generally. As a result of the envisaged market re-pricing, there is a risk that Count’s member firms may terminate their arrangements with Count if they do not support the new pricing model.”

Self-licensing – viable or problematic?

In a post-2024 world in which all still-practicing advisers are degree-qualified, registered and members of a code-monitoring body, why should they remain under the umbrella of a dealer group?

According to both Rowe and HardingDavis, the reason is simple – economics.

While both they and Selvarajah support selflicensing, they argue that the Australian regulatory environment makes it not something which should be entered into lightly, particularly in circumstances where the Australian Securities and Investments Commission (ASIC) has signalled its intention to remain animated with respect

to financial advice.

Harding-Davis said that even putting the regulatory/administrative burden to one side there was the question of obtaining and maintaining professional indemnity (PI) insurance – something which was becoming increasingly challenging.

“There are potentially many hours entailed in ensuring you are compliant and the question is whether advisers can afford to reduce their face-time with clients to undertake that task,” he said.

However, for advisers considering selflicensing the economics can be attractive when they weigh up the costs associated with dealer group membership which can run from around $85,000 a year to over $150,000 a year when factors such as PI insurance, planning software and investment research are taken into account.

The consensus view is that self-licensing will continue to be a factor but that its rate of growth amongst advisers is likely to be determined by a range of factors, not least of which being the ability to access affordable PI cover.

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Great investments are found in the

Invest in your world – and access global companies like Nestlé.

The Intermede Global Equities Fund makes it easy for your clients to access global opportunities.

Intermede’s investment experts use intelligent active management grounded in fundamental research to bring some of their best investment ideas to your clients’ portfolios.

We are global equities.

To find out more about the Intermede Global Equities Fund, call 1300 738 355 or email info@nabam.com.au

This information is provided by Antares Capital Partners Limited (ABN 85 066 081 114, AFSL 234483) (ACP), as the Responsible Entity of the Intermede Global Equities Fund (Fund). ACP has appointed Intermede Investment Partners Limited (‘Intermede’) as investment manager of the Fund. The Fund is a managed investment scheme through which an investor’s money is pooled together with other investors’ monies to buy investments which are managed on behalf of all investors. The Fund invests in an actively managed portfolio of equities listed on share markets around the world. When you invest in the Fund you acquire an ‘interest’ in the form of units of the Fund rather than ownership of the underlying assets of the Fund including securities issued by companies. Any references to specific companies are for illustrative purposes only and should not be taken as a recommendation to buy, sell or hold securities in these companies. Whilst it is consistent with the Fund’s current investment strategy to invest in global companies, there is no guarantee that the Fund will continue to hold securities of, or any other investment in, any company mentioned herein after the time of publication. The companies named herein have provided necessary consents, however they do not constitute or imply any association or business relationship including but not limited to partnership, sponsorship with or endorsement of the information provider or information provided herein. ACP is a member of the group of companies comprised of National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686), its related companies, associated entities and any officer, employee, agent, adviser or contractor therefore (‘NAB Group’). An investment in any product or service referred to in this advertisement does not represent a deposit or liability of, and is not guaranteed by, NAB or any other member of the NAB Group. This information may constitute general advice. It has been prepared without taking into account your objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. You should obtain a Product Disclosure Statement (PDS) relating to the financial product mentioned in this communication issued by ACP, and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the PDS is available upon request by phoning 1300 738 355 or on our website at nabam.com.au.

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Strategies

Why advisers and clients are choosing managed portfolios Managed portfolios now represent more than $62 billion in funds under management1, with growth expected to accelerate over the next three years2.

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his surging popularity can be put down to the advantages managed portfolios offer both clients and advisers.

In June 2019 AMP, in partnership with IMAP, produced a white paper which highlights transparency, investment quality and flexibility as key reasons for the significant growth of managed portfolios in recent years.

Clients want proof they’re in good hands AMP’s research indicates that clients ascribe considerable value to transparency, access to high quality investments, and portfolio flexibility. Clients want to know that their adviser is putting their interests first and they want to see proof. They like that advisers see the big picture but they’re also impressed by the right moves.

Managed portfolios offer: • tangible proof of a higher level of governance and sophistication, harnessing the expertise of professional portfolio construction management, administration and client communications,

• access to a professional investment manager who conducts detailed research to develop managed portfolio solutions, • solutions that enable portfolio managers to rebalance portfolios easily with the intention of reducing any implementation delays and potentially delivering better outcomes for clients, • transparency of day-to-day investment decisions and implementation changes reporting on all transactions and listing the portfolio constituents.

This combination of leading investment managers, strong governance and transparent reporting practices makes clients feel informed and in control of their investments. The process of portfolio construction and rebalancing is simple and efficient, and highly valued by clients.

Advisers want efficiency and reduced operational risk Managed portfolios are part of the move by many advice practices to improve their efficiencies and adopt more systematic ways of delivering their value proposition through:

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Strategies

• developing and rebalancing portfolios that are consistent with their investment philosophy and market outlook, • ensuring that changes in client portfolios are implemented quickly and uniformly, greatly reducing the risk of any implementation delays or loss of market position, • harnessing the expertise of portfolio construction, management, administration and client communications, resulting in greater efficiencies and mitigating operational risk.

Managed portfolios are supported by expertise in portfolio construction, ongoing management, administration and client communications.

They allow an advice practice to transfer some operational risk for transaction execution, and to some extent, portfolio construction, to professional third parties.

Managed portfolios can help advisers ensure their client’s portfolio is consistent with their current investment views, without having to individually transact on each client’s portfolio.

Changes to managed portfolios are implemented quickly and uniformly, greatly reducing implementation delays and 1 2

potentially delivering better investment outcomes. The costly administrative burden for advisers is reduced as there is no need to provide ROAs or obtain client approval for portfolio changes to be made.

Advisers are given more time to help their clients reach their goals Managed portfolios let advisers entrust investment management to experts, freeing them up to manage their clients’ needs and goals.

Advisers who use managed portfolios report positive and material benefits for both their practice and their clients – in the form of time savings, higher revenue and more time spent with clients. This allows the adviser to focus on their relationship with the client and explain how their investments will be managed to align with their goals and how the portfolio is tracking against those goals and responding to market conditions.

Getting involved in managed portfolios To find out how you can access MyNorth Managed Portfolios through AMP please visit amp.com.au/adviser/managedportfolios or contact an AMP business development manager on 1800 655 655.

AMP and Institute of Managed Account Professionals Ltd June 2019 A Guide to Managed Portfolios Investment Trends February 2019 Managed Accounts Report

Important Information - the information provided in this article is of a general nature only and does not take any particular person's circumstances into account. It is provided by NMMT Limited (NMMT) ABN 42 058 835 573 and is for professional adviser use only.

It's important to consider you or your client's particular circumstances and read the relevant disclosure documents available at northonline.com.au before deciding what's right for you or your client. NMMT is part of the AMP group and can be contacted on 1800 667 841 or north@amp.com.au. If a person decides to acquire or vary a financial product or service, companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium they pay or the value of their investments. Contact AMP for more details.

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Strategies

Helping clients navigate changing markets With over 500 investment products available on ASX, it is now simpler than ever to diversify your clients’ portfolios and help protect them in times of market volatility.

A

round 30% of Australians own shares in the Australian share market1, making them some of the most active retail investors worldwide. However, research shows that Australian investors are still not well diversified across various asset classes.

For example, of the $704b sitting within SelfManaged Superannuation Funds (SMSFs), over $260b of this is held in ASX listed securities – a large proportion of which is in large-cap Australian equities. Additionally, $171b of SMSF investments is in cash and term deposits.

‘What is the issue with this?’ some may ask. The answer is ‘nothing’, whilst times are good. However, all markets go through cycles and eventually, when the market experiences a downturn, investors will desire exposure to other markets and asset classes with negative or lower correlation to the direction of the Australian equities market. In other words, it is better not to put all your eggs into the one basket.

A recent positive trend observed on ASX saw investors increasingly shifting away from holding only Australian equities and into other asset classes via a range of professionally managed investment products, creating opportunities to diversify.

ASX has a breadth of investment products

1

such as Exchange Traded Products/Funds (ETPs/ETFs), Listed Investment Companies and Trusts (LICs and LITs) and mFund, the Settlement Service available on ASX to help you support your clients in achieving their goals. mFund enables you and your clients to invest in unlisted managed funds via a participating mFund broker, offering a paperless investment experience, automated settlement and a holistic view of your clients’ ASX investments held securely under their own CHESS-sponsored Holder Identification Number (HIN).

With over 500 investment products available across a range of asset classes, these investment products empower your clients to be efficient, cost-effective and ensure transparency across investments.

Help your clients discover a world of opportunities through building institutional quality portfolios on ASX – achieving diversification across asset classes, sectors and geographies, liquidity and transparency, and the option of capital growth and income.

To find out more about how ASX investment products can help your clients, get in touch with ASX.

Source: APRA, Deloitte Actuaries and Consultants

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Discover a world of opportunities for your clients ASX investment products can help your clients achieve their goals

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This communication provides general information only and may be subject to change at any time without notice. It is intended for adviser use only and must not be distributed to or used for retail clients. ASX Limited ABN 98 008 624 691 and its related bodies corporate (“ASX”) does not give any warranty or representation as to the accuracy, reliability or completeness of the information. To the extent permitted by law, ASX and its employees, officers and contractors shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided or omitted or from any one acting or refraining to act in reliance on this information. © Copyright 2019 ASX Operations Pty Limited ABN 42 004 523 782. All rights reserved 2019.

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The UK Experience

A UK experience of financial reform As Australian financial advisers buckle under the weight of the Royal Commission, one country has already gone through the process. In the UK, their equivalent version came into force in 2013 and was called the Retail Distribution Review (RDR), Laura Dew writes.

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t was prompted by a need to improve clarity for people looking to invest, raise professional standards of financial advisers and reduce the conflict of interest which was found in advisers’ remuneration.

Prior to the RDR, many financial advisers were charging via commission where they would earn a fee for products they sold which had led to a conflict of interest and several misselling scandals for products such as payment protection insurance (PPI).

The biggest piece of regulation before the RDR had been the depolarisation of financial advice in 2005 which had meant advisers could be independent, single-tied to a company or multi-tied which meant they could offer products from a range of providers.

But in June 2007, the Financial Services Authority outlined its guidelines for what it wanted from a new-style financial services industry which would be enacted January 2013, perhaps the biggest industry shake-up in years.

These guidelines were to have: • standards of professionalism that inspire consumer confidence and build trust; • an industry that engages with consumers in a clearer way about products and services; • remuneration arrangements that allow competitive forces to work in favour of consumers; • a market that allows more consumers to have their needs and wants addressed;

• an industry where firms are sufficiently able to deliver on their longer-term commitments and where they treat their customers fairly; and • a regulatory framework that can support the delivery of all these aspirations and does not inhibit future innovation where this benefits consumers.

The requirements of this RDR were: • higher minimum level of adviser qualification, at least Level 4 with the option to do Level 6; • advisers had to decide if they were independent (need to consider all investment products) or restricted (only advise in certain areas such as pensions); • removal of commission from providers; • switch from commission to fees, requirement to have an upfront agreement on client fees to make them transparent; • demonstrate different charging structures such as hourly for one-off clients or annual charges; and • implementation of ‘clean’ share classes, those share classes which strip out commission charges.

However, not all of the initial guidelines were received positively by the industry. Like in Australia, many advisers were perturbed by having to undertake additional qualifications for work they already carried out on a daily basis. They also worried about implementing a charging structure, how it would affect their profitability and how it would received by their clients.

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The UK Experience For asset managers, the necessity to set up new clean share classes and move clients across to them was seen as an unnecessary burden. The share classes separated out the annual management charge (AMC) and annual expenses and lacked a platform rebate. It was estimated setting up a new share class could cost firms £20,000 ($35,506)for each one as well as the administrative burden of adding them to research houses and including them on company documents.

From the consumer perspective, they were confused about having to pay for what they thought was ‘free’ advice and some with small

pots (less than £50,000) were worried they would be dumped by their advisers as it was not cost-effective to service them. Instead they were led to a model portfolio/exchange traded fund (ETF) which fuelled demand for low-cost index or passive funds which has been a rapidlygrowing market ever since. It also led to a rise of ‘simplified advice’ and robo-advisers such as Nutmeg.

But some advisers, notably those who characterised themselves as ‘financial planners’, had already been operating under RDR-friendly systems for years and were qualified to Certified Continued on page 22

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The UK Experience Continued from page 21 Financial Planner (CFP) standards so they felt it was a good thing and one which would bring up the bar for the industry.

Despite these concerns, the UK RDR did have a notable advantage over the Australian Royal Commission in that advisers were given around four years to get their head around the changes and achieve the necessary changes.

This is in contrast to the less than two years that Australians receive, so there was far less stress and rush surrounding the process.

Post-implementation So what was the outcome of the review once it had been implemented? Following the implementation, the re-named Financial Conduct Authority (FCA), issued a report in 2014 entitled ‘RDR: Post-implementation review’ which found: • reduced product bias from adviser recommendations; • a decline in sale of high commission products and reduction in product bias; • easier for advisers and consumers to compare platforms, reducing D2C platform charges and leading to more ‘shopping around’ between platforms by clients; • product prices had fallen; • ‘vast majority’ of advisers were qualified to new minimum standards with many going beyond the minimum and many becoming members of professional bodies; • costs of complying with RDR were in line or lower than expectations; • availability of advice did not reduce but some consumers concluded it did not offer ‘value for money’; • improvements were needed on disclosure of costs to client, particularly regarding ongoing charges; and

•

innovation in terms of product or client offering was limited.

Speaking at the time of the review, former FCA chief executive, Martin Wheatley, who departed the regulator in July 2015, said the results were ‘positive’ for the industry.

“It is still early days but the indications are that the sector has responded positively to the reforms. Importantly, we have seen a reduction in product bias, with a very noticeable decline in the sales of those products that before RDR came with higher commission,” he said.

“These are positive signs but we know there is more to do.”

At the end of 2017, there were over 5,000 financial advice firms in the UK and 87 per cent of these classed themselves as ‘independent’ with the majority being loath to switch to a restricted model. Some 28 per cent of investors said they used a financial adviser to arrange their investments, the second-most popular method behind going directly to a provider.

The largest UK financial advice firm was Tilney with nearly 400 financial advisers and 55 UK offices, leading them to look after more than £24 billion in assets under management.

Unintended consequences However, it was not all smooth sailing in the intervening years with companies reporting several unexpected or unintended effects from the reforms.

One of the biggest moves was the effect of the RDR on smaller clients with minimal pots who were unable to obtain financial advice and much has been written about the so-called ‘advice gap’. A study by the UK’s OpenMoney this year found the gulf between those able and unable to afford financial advice had widened

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The UK Experience significantly in the four years since the RDR. While services such as robo-advisers Nutmeg and Wealthify had emerged, these ‘cannot replace the services provided by fully-regulated financial advisers’, according to OpenMoney, as they were based on online surveys rather than personalised advice.

While one-third of survey respondents admitted they found managing their money ‘challenging’, they were simultaneously unwilling to pay the high fees attached to financial advice.

The only circumstances when it would be considered were during life changes such as if an individual was buying a house or setting up a business. The average hourly rate for financial advice was £150 but could reach as high as £350.

In light of this information and in order to do an updated review of the industry, the FCA issued a second call for evidence in May 2019.

Upon receiving feedback, it found several topics remained up for debate on how they should be considered by the regulator and advisers. These four topics covered access to services, the regulatory perimeter, consumer engagement and innovation.

Advisers were most concerned that: • clients with smaller amounts of money to invest had minimal access to appropriate financial advice; • they were unable to give information to clients as they were worried it would be perceived by the regulator as regulated advice; • consumer education of financial planning issues could be improved to encourage engagement with advice and guidance services; and • alternative routes of financial advice such as online or robo-advice were unpopular with

consumers and more work was needed to incorporate technology to help consumers as well as streamlined advice processes for simpler products.

In light of this, the FCA said it would conduct additional research to obtain information from consumers and firms on the aforementioned topics.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “Millions of people look for help and support in making financial decisions every year and the aim of the RDR was to help the market develop the right advice or guidance service consumers need to make those decisions.

“Consumers and the market are changing rapidly, as technology, employment patterns and inter-generational challenges change the way consumers interact with financial services. As well as looking at how the market has evolved since the RDR, it is important our work looks ahead to see how we ensure that this important sector works well in the future. We want the market to deliver a range of good quality, affordable advice and guidance services that meet consumer needs.”

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INVESTOR EVENTS 2020 SAVE THE DATE MELBOURNE

PERTH

C ANBERR A

AUCKL AND

BRISBANE

SYDNE Y

Friday, 21 February 2020 Monday, 24 February 2020 Tuesday, 25 February 2020 ADEL AIDE

Thursday, 27 February 2020 Tuesday, 3 March 2020 Thursday, 5 March 2020 Friday, 6 March 2020

Please join us at Magellan’s 2020 ‘Investor Evenings’ across Australia and in Auckland where I will discuss what is happening in the investment world.

Tickets will be on sale later this year and all proceeds will go to charity. Please save the date. There will be drinks and canapés afterwards where you can meet myself and the rest of the Magellan team.

Wednesday, 26 February 2020 All tickets will be on sale later this year with all proceeds going to charity.

Hamish Douglass

If you are interested in attending an event and would like further information please email - events@magellangroup.com.au.

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Wealth management

THE END OF the ‘great banking adventure into wealth management’

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Wealth management It looks like the Australian wealth management industry has been in great turmoil over the past few months and is still struggling to find its way over how to navigate in the post-Royal Commission environment, Oksana Patron writes.

W

ith the prospect of a ‘great banking adventure in wealth management’ reaching its end, everyone in the industry is now carefully watching what’s next, with new reports on companies changing hands, being swallowed up by stronger rivals or facing a shut-down, emerging almost on a weekly basis.

On top of that, a number of key wealth management firms from both sides of the spectrum have continued to review their strategies, in a hope to better prepare themselves for the coming change.

This was the case with a recently-announced strategy by AMP, dubbed by independent group Synchron as a “return to dark ages”, which aimed to see “fewer but more productive advisers”.

AMP still holds the title of one of the biggest groups in the wealth management sector, with AMP Financial Planning consecutively sitting on top of TOP 100 Financial Planning Groups’ list over the last few years, an annual ranking run by Money Management.

The data from July, 2018, showed that AMP FP had over 1,400 financial advisers, significantly larger than the remaining three groups which also operate under AMP’s umbrella. These groups included Charter Financial Planning, Hillross Financial Services and Ipac Securities which, respectively, had 684, 304 and 139 planners, as of last year.

However, according to this year’s Australian Securities and Investment Commission’s (ASIC’s) Financial Adviser Register (FAR) data, all AMP groups saw declines in number of its advisers

over the 12 months, with AMP FP suffering the biggest loss of 145 to 1,272 advisers.

Although, at the time of writing this, the fate of these groups remain unknown, there is a high chance that AMP might soon be losing its position as a leader, given the rapid expansion of some of its competitors.

While AMP was busy over the last few months explaining its business in front of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, IOOF continued to grow its business and completed the acquisition of Australia and New Zealand Banking Group’s (ANZ) four aligned groups: RI Advice, Millennium 3, Financial Services Partners (FSP) and Elders Financial Planning, known together as ANZ Wealth Management (ANZWM).

The acquisition represented an addition of around 650 financial planners as of July, 2019.

On the other hand, IOOF began to reorganise internally its wealth management business much earlier, with a number of companies being either merged or shut down. This included My Adviser and Plan B Wealth Management which were both closed down while Western Pacific Financial Group and Wealth Managers were merged with Consultum and Bridges Financial Services, respectively.

As a result, IOOF had five financial planning groups operating under its auspices with a total number of close to 990 planners which in conjunction with the ex-ANZ-groups brings the current total number of advisers for the group to slightly over 1,600.

Continued on page 28

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Wealth management Continued from page 27

Banks depart wealth management As IOOF and AMP are still in the race, the banks continued their departure from the wealth management business.

In March, Westpac confirmed its exit from the financial advice business, in a move that saw Viridian Advisory snap up Westpac’s BT Financial Advice business. The bank reset its wealth strategy and decided to exit the provision of personal financial advice via financial advisers.

Following this, Westpac Banking Corporation exited the provision of personal financial advice

by Westpac salaried financial advisers in June while authorised representatives currently authorised under the Securitor Financial Group and Magnitude Group license are expected to transition off those licenses by 30 September.

In July last year the three groups jointly had over 930 financial planners. This included 293 planners at Securitor, and 466 and 171, respectively, at BT Financial Advice/Westpac Group name IOOF

Banking Corporation and Magnitude Group.

Following the Westpac announcements, the Commonwealth Bank announced in June the sale of one of its key wealth management assets, Count Financial, to CountPlus for $2.5 million. The transaction took place almost a decade after the Count business was first sold to the Commonwealth Bank by its founder, Barry Lambert, for a much higher consideration of $343 million.

In August, CountPlus announced that, as a result of the acquisition, it would gain close to 350 advisers from Count Financial.

In 2015, Commonwealth Bank transferred all planners from its BW Financial Advice to Financial Wisdom, a group that had over 300 planners as of July this year. However, more recently the bank announced plans to shut down Financial Wisdom in 2020, sending a clear message to advisers that its intention was to exit its wealth management and mortgage broking businesses “over time”.

Continued on page 30

Number of advisers (July,2018)

Number of advisers (July,2019)

939

991

Consultum Financial Advisers

209

214

Lonsdale Financial Group

198

196

Shadforth Financial Group

154

158

Bridges Financial Services

171

195

Ord Minnett

207

228

Ex-ANZ groups

649

647

Millennium3 Financial Services

265

256

RI Advice

184

179

FSP (Financial Services Partners)

137

144

Elders Financial Planning

63

68

1,588

1,638

Total

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Wealth management Retirement

The sale of Count Financial by Commonwealth Bank, to CountPlus for $2.5 million took place almost a decade after the Count business was first sold to the Commonwealth Bank by its founder, Barry Lambert, for a much higher consideration of $343 million.

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Wealth management Continued from page 28 As of now, this will leave the bank with just one group, Commonwealth FP, which is one of the few groups that can boast having over 500 advisers on board.

Other players The last few months have also proved that it wasn’t just banks and the biggest institutional players that were hit by the disruption in the industry and that the departure from wealth management as some companies, began as early as a few years back.

In 2015, Suncorp was the first biggest institutional player that said it would exit from the financial planning business, a move which affected then the jobs of around 170 selfemployed, aligned advisers, at its two networks,

Wealth Management – Big Four

Guardian Advice and Suncorp Financial Planning.

Another company that followed in its footsteps in April, 2019, was Aon after announcing the sale of its financial advice arm, Aon Hewitt Financial Advice which still had over 180 advisers in 2018.

In March, another publicly-listed wealth management firm, Yellow Brick Road (YBR), which in 2018 had 80 planners, announced a strategic review of its business in order to remain competitive and announced plans to focus on its mortgage arm. In July the company had completed the exit of another wealth business as it confirmed the sale of its 50 per cent interest in publiclylisted institutionally-focused active fixed income manager, Smarter Money Investment.

ANZ Millennium 3 FS ANZ Banking Group RI Advice FSP Elders FP CBA Commonwealth FP (CFP) Count Financial Financial Wisdom BW Financial Advice WESTPAC Westpac BC Securitor FG Magnitude St George NAB NAB FP GWM AS Godfrey Pembroke Apogee FP Meritum FG

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IOOF Millennium 3 FS RI Advice FSP Elders FP CBA Commonwealth FP (CFP)

VIRIDIAN ADVISORY Securitor FG Magnitude COUNTPLUS Count Financial NAB NAB FB GWM AS Godfrey Pembroke Apogee FP Meritum FG

16/08/2019 11:22:05 AM

Wealth management Wealth management (IOOF, AMP, other instos) AMP AMP FP Charter FP Hillross FS Ipac Securities

AMP AMP FP Charter FP Hillross FS Ipac Securities

IOOF Bridges FS Lonsdale FG Ord Minnett My Adviser Consultum FA Wealth Managers Plan B Wealth Management Shadforth FG Western Pacific

IOOF Bridges FS Lonsdale FG Ord Minnett Consultum FA Shadforth FG Millennium 3 FS RI Advice FSP Elders FP Viridian Advisory Securitor FG Magnitude

Suncorp Suncorp FS Guardian Advice

Suncorp

Macquarie Macquarie PW

Macquarie Macquarie PW

Australian Unity Australian Unity PFS Other Instos: Aon Hewitt FA Mercer FA Affinia FA Perpetual

Australian Unity Australian Unity PFS Other Instos: Mercer FA Affinia FA Perpetual

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15/08/2019 4:14:22 PM

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