Vertical Integration: The Missing Piece in Quality of Advice Review
The exclusion of vertical integration from the Quality of Advice Review's terms of reference raises important questions about the future regulation of different business models in the financial advice industry. According to Encore Advisory managing director Tom Reddacliff, this omission could hinder efforts to address both advice affordability and market clarity.
"If someone's operating a vertically integrated model like AMP, Insignia and others out there that are privately owned, we're better off knowing exactly what those business models are or aren't," Reddacliff explains. He emphasizes the importance of clear distinctions, noting that these aren't independent models and such clarity would benefit both advice affordability and market transparency.
The Challenge of One-Size-Fits-All Regulation
Reddacliff points to the limitations of applying uniform regulations across diverse business models. Drawing comparisons with more developed markets, he highlights how the UK has successfully implemented clear labeling and segmentation of different advice segments.
"In the UK they've clearly labelled or segmented their advice segments and that's what we should do here," he notes. "A classic example is risk specialist advisers; that's a clear segment of advice but it's operating under the same set of rules and education standards as a stockbroker giving advice."
Impact on Market Segmentation
The absence of vertical integration from the review's scope could have far-reaching implications. Reddacliff warns that without addressing different business models, it will be challenging to properly segment the advice market and, consequently, tackle the crucial issue of advice affordability.
This concern is particularly relevant given the industry's ongoing struggles with making financial advice more accessible to everyday Australians. The current regulatory framework's failure to distinguish between different business models and advice segments may be contributing to these challenges.
Looking Forward
The discussion around vertical integration remains crucial for the industry's future development. While the Quality of Advice Review addresses many important aspects of financial advice regulation, the omission of vertical integration considerations could leave significant questions unanswered about how different business models should operate and be regulated in the Australian market.
This article draws insights from "'Big oversight': Vertical integration notably absent from advice review" which appeared in Professional Planner, March 2022.
Read the full article: Big oversight’: Vertical integration notably absent from advice review
(https://www.professionalplanner.com.au/2022/03/big-oversight-vertical-integration-notably-absent-from-advice-review/)
