The rapid expansion of the Big Four banks and AMP into financial planning could see them seize an 80 per cent stake in the advice market, research suggests, prompting renewed calls for transparency around vertical integration.
A report prepared by the Customer Owned Banking Association (COBA) for the Financial Systems Inquiry (FSI) said the major players had the potential to take around 70 or 80 per cent of both the planning and funds management spaces if competition measures were not introduced.
Currently, around 36 per cent of overall planning revenue flows into the Big Four, but when the analysis includes AMP, the figure rises to 49 per cent, the report showed.
However, COBA said the alignment of dealer groups and adviser networks is “difficult to quantify”, which means the actual share could be much higher.
“This concentration of activity should be a concern for competition regulators in Australia,” COBA CEO Louise Petschler said.
The report said “industry consolidation is being driven by economies of scale achieved by having a large number of advisers within the same group”.
“The four major banks already hold almost 80 per cent of total assets in the banking market and this research shows their rapidly expanding share of other markets,” Petschler said.
“A comparable analysis in the mid-2000s and before the global financial crisis would have found each of these industries was more competitive, with only around half the market accounted for by the top five firms, and the remaining half occupied by small and medium firms.”
In its submission to the FSI, COBA called for a number of measures to increase competition, including periodical vertical integration reporting standards and limits to how much institutional players can own.
“An initial step to counter the trend in rising oligopolistic behaviour in the financial services market would be to charge the Australian Securities and Investments Commission with responsibility for production of a consistent set of annual market share indicators,” the report said.
“A more drastic approach would be to take appropriate action to curb or perhaps prohibit the deep vertical integration that has evolved over the last decade in the financial services market.”