Once the dust has settled on the current round of industry reforms, the dealer group as we know it may cease to exist, according to senior financial advice figures.
Advice providers will need to be vertically integrated in order to survive, while the boutique model may also flourish in the new post-Future of Financial Advice (FOFA) environment, according to head of practice-based financial planning at ANZ Wealth Neil Younger and outgoing Professional Investment Services general manager Grahame Evans.
"The question whether there will be dealer groups as we know them in the future is a big question," Evans said at a Financial Services Council and Association of Financial Advisers event in Sydney this week.
He said that with the liability placed on dealer groups, if someone was looking to start a business and did a cost/benefit analysis, they would not be looking to start a dealer group.
""A lot of the dealer groups, both small and large, that have not aligned or had the opportunity to be vertically integrated, are really going to struggle.
"They'll have to rethink those models and find different ways to generate revenue to provide services, or they'll be swallowed up by major industry players," Evans said.
Younger said that current and prior business models used by dealer groups seemed to be very challenged in a post-FOFA environment.
"There appears to be some advantage to operating a business model within a vertically integrated shop, notwithstanding that, best interests still is prevalent and you've got to deal with anti-avoidance provisions in terms of the structures that are put in place," Younger said.
He said there would emerge a very changed landscape within financial advice markets, partly because there was still a gap between what a client was prepared to pay for advice and what it cost to deliver that advice. The situation would require business models to adjust to deal with that, Younger said.
"[The boutique] model will flourish in the new environment of enhanced professionalism, or at least enhance its reputation. But I think if you're in that middle territory and you're not in a vertically integrated business, it's a challenging place to be and you're in an environment that probably won't be sustainable once this legislation is acted out."
Earlier at the event, in response to a question on vertical integration, Australian Securities and Investments Commission commissioner Peter Kell said while he could not provide a comprehensive answer on all the aspects of the issue now, it would be covered in ASIC's best interests and conflicted remuneration consultation papers.
"We're tracking with interest some of the current developments within the industry," he said.
