The "one stop financial shop".

The Commonwealth government has recently indicated it would not implement certain aspects of the FOFA reforms relating to "best interests" duty requirement and commissions payable to advisers who recommend financial products.

Like all policy changes, there will be consequences of these decisions. One consequence which is keenly sought by the big banks and their subsidiary wealth management businesses is the "one stop financial shop" because it keeps the fees and commissions payable in house.  

Michael West, in the Fairfax press, notes both the "magnitude and layers of fees" are simply too high, and are failing consumers.  He argues the big four banks and AMP are "preying" on customers by imposing an average of 0.75% adviser fees on top of an average platform fee of 0.50% and product management fees on top.  Not only are these fees high, but the choice of products is limited by the big funds which are "upstreaming" clients'cash balances into the parent banks at low rates of return, with "no pretence" of shopping around for better rates. West notes this is "cheap funding for the banks" and arguably amounts to another fee "in the guise of the cash performance foregone".

We also note the recent piece from Christopher Joye in the Financial Review:

The far-reaching nature of the government's desired changes could result in the development of vast sales forces of spruikers working for vertically integrated institutions that both build and distribute products.

Joye adds, "the issue of embedding commissions and sales bonuses back into the finance industry's DNA is merely the dorsal fin of a much more dangerous and formidable set of dysfunctions that lurk beneath the surface".  Paring back the evocative language, Joye's point is the same as West's: the financial services industry is not well served by the return of commissions in an environment of strong vertical integration thereby creating conflicts, which are compounded by the implied government guarantee provided to all approved deposit taking institutions during the GFC (and which still remains).

Adding to the chorus, Alan Kohler stridently notes in The Australian:

Senator Sinodinos and his colleagues should be sending a message loud and clear to all financial planners that they are not sales-people - they are pure advisers.
That would be in the best interests of the many financial planners who are pure advisers and are usually members of the FPA. The only way to do that is to ensure that no adviser can be paid for selling, only for advice.
Unfortunately, a welcome attempt to cut in the cost of financial advice by removing regulation has been completely nullified by the reintroduction of sales commissions. Senator Sinodinos and his team should just focus on getting the price of advice down.

As a truly independent adviser Sage Advisers can note here that there are various technological and regulatory changes which offer alternatives and real potential for SMSFs to have greater choice and control over product selection and cost of investments.  They include:

• mFund - the new paperless settlement service to trade managed funds in a way similar to CHESS (mFund was formerly known as AQUA II).  The ASX has received final regulatory clearance from ASIC and AUSTRAC for mFund to begin operations in April. mFund will benefit SMSF investors, who have traditionally used the ASX just to trade equities.  This development will allow SMSFs to build more diversified risk-managed portfolios and you can read more about it here;
• ETFs - exchange traded funds have developed significantly in Australia and overseas and are now a very popular choice for investors.  SMSFs have increased their use of them by almost 50% in the last 12 months.  Most of our clients have taken advantage of these ETFs and can see their advantages.
• Sage Online - our software available at a cost of $330 p/a for our clients to view their investment portfolio any time, anywhere.  This provides a wonderful snapshot and gives real-time reports, at a cost far less than the expensive wrap account fees offered by the majors. It also offers reporting on a flexible, independently selected product list.

Sage Advisers offers tax compliance,  fund administration and personalised professional advice under our own independent AFS Licence and Tax Agent Registration. 

The possibility of truly independent investment advice remains in spite of the domination of big banks.  
There is nothing wrong in theory with the "one stop shop" but the discerning consumer must peel back the layers of the onion in order to understand the nature of the relationships between the adviser and the products s/he has recommended. Getting down to that detail can be difficult and hidden in the volumes of paperwork.