Vertical integration being scrutinised by ASIC
The Australian Securities and Investments Commission (ASIC) has revealed it is closely examining vertical integration in the wealth management sector.
The regulator's activity has been confirmed in a briefing document lodged with the Senate Economics Committee this week, which spells out the degree of vertical integration which has occurred across the financial services industry.
It states that vertical integration is common in the financial system, particularly in the banking and funds management industries, and that the trend towards vertical integration between parties in the product distribution chain has continued.
"Funds management is increasingly being bundled with a range of other financial services under the wealth management umbrella," the briefing document said.
"ASIC's review of the Future of Financial Advice (FOFA) reform implementation found that approximately 63 per cent of licensees sampled were affiliated with financial product issuers.
Where financial advice is concerned, the briefing paper said the big four banks and AMP currently accounted for more than half the number of financial advisers in Australia and that, in wealth management "the four big banks, all of which have significant fund management operations, have increased their share of the wealth management industry over the past few years".
"We are currently doing work on vertical integration in this space which will give us a clearer picture of the extent and impact of vertical integration," it said.
The briefing paper also pointed to vertical integration's impact on the mortgage broking industry, particularly in the aftermath of the Global Financial Crisis (GFC).
"In the years prior to the GFC, the mortgage broking industry developed as an independent channel that facilitated distribution of home loans by smaller lenders and new players based around securitisation," it said.
"In 2014, the MFAA estimated that aggregator or broking groups owned by big four banks (totally or substantially) are estimated to cover around 40 per cent of mortgage brokers."
"Subsequently, there has been vertical integration with banks buying or taking an ownership stake in a number of the major brokers. ASIC's current mortgage broker review will consider how distribution is working through this channel," it said.
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