Future of Financial Advice (FOFA) reforms will dent the rate of growth of the personal superannuation and allocated pension markets while the self-managed, industry super fund and employer sponsored sectors will continue to flourish, according to research house Dexx&R.
DEXX&R has revised down its 10 year growth projection for the overall financial services market by half a per cent to 8.3 per cent per annum, resulting in a total market size of $3.612 trillion by 2021.
The downgraded projection reflects the anticipated subdued growth in total employment and in equity markets over this period, DEXX&R stated.
While FOFA has not been factored into overall projections, DEXX&R predicted that the personal superannuation segment – which made up 33 per cent of superannuation assets in 2007 – would increase marginally from its current share of 23 per cent up to 24 per cent over the next decade.
This is because the personal superannuation segment is almost wholly financial adviser driven, and once commissions are removed, those clients with small balances or making smaller voluntary contributions will be less willing to accept a minimum advice fee and advisers will focus more on high net worth clients, according to DEXX&R managing director Mark Kachor.
DEXX&R predicted a 20 per cent reduction in funds inflow from July 2012, resulting in a further $1.1 billion fall in personal superannuation funds under management (FUM) in the 12 months to June 2013, rising to a $10.8 billion reduction by June 2021.
FOFA should have a lesser impact on the retirement incomes market, which DEXX&R predicted to grow at 11.2 per cent per annum to $322 by 2021, because there will be strong ongoing demand for financial advice by retirees and an advice fee at the time of retirement represents a small percentage of investable assets.
However increased costs arising from FOFA will raise the threshold at which a financial advice fee represents an acceptable percentage to a client, and a 10 per cent decrease in inflows would reduce the FUM in the allocated pension sector by $8.4 billion by 2021, DEXX&R stated.
DEXX&R predicted in-force business in the risk market to grow at 12.8 per cent from $12.5 billion to $41.7 billion in June 2021, with FOFA to have a positive effect on individual risk business, but a negative impact on group risk for products on a platform.
"The ban on group risk commission payments may result in advice based recommendations for more fully featured individual risk products," DEXX&R stated.
