Is the Government’s inquiry into capital concentration a result of their own doing?

The Government’s latest target for the financial services industry is its inquiry into common ownership and capital concentration, however a question has to be asked about whether their concerns are a result of the regulatory change it has imposed on the industry.

When announcing the inquiry, chair of the committee, Liberal backbencher Tim Wilson said the inquiry was “urgent” as there was “already a high concentration of ownership of ASX-listed companies by an increasingly small number of mega funds”.

Since then, the inquiry has been labelled as “pointless” and an “act of political theatre” by the Association of Superannuation Funds of Australia. 

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It is important to note that some of the Government’s most recent regulatory changes could actually be a push for greater common ownership and capital concentration.

This includes the Your Future, Your Super performance test that could lead funds to index hugging just to satisfy the test. 

The Government has also pushed smaller superannuation funds to merge with larger funds and thus creating ‘mega funds’.

Also, as the Stockbrokers and Financial Adviser Association (SAFAA) has pointed out, the fact that financial advisers are leaving in droves due to the amount of red tape, regulatory changes, and compliance the Government has piled onto the industry could lead to further capital concentration.

The association rightly said that the shrinking pool of advisers would impact the availability and affordability of advice on equity market investment.
Retail investors would then be left with the choice of DIY trading with no advice, or advice from a planner who had minimal direct expertise in listed investments and markets.

While the Government has considered this inquiry as “urgent”, what is perhaps more “urgent” is the number of advisers that will be left in the industry by the end of the year and the beginning months of 2022 coupled with the fact that the unmet advice gap for those who really need advice grows bigger by the day.

As Money Management’s 2021 TOP Financial Planning Groups survey, which you can find in this edition, has already found is that the number of advisers from the largest planning groups has fallen to 11,500.

The Government’s Quality of Advice Review can’t come soon enough and one would hope they view that as “urgent” too. 

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