AIOFP urges Canberra to end financial advice ‘overreach’

In an email addressed to “all politicians” and obtained by ifa, the Association of Independently Owned Financial Professionals (AIOFP) has not only reiterated its plea for an end to vertical integration but has also underscored the need for a simultaneous reduction in Canberra’s involvement in financial advice.

“Dear parliamentarian, the time has arrived to eliminate vertical integration in the financial services industry,” the email begins.

“With the banks leaving financial advice after failing consumers for decades with the structure, it should now be a path of minimal resistance to eliminate the ‘sacred cow of conflicted, anti-consumer behaviour’ in financial services.”

The AIOFP further asked the parliamentarians to consider factors such as the findings of the 2009 Ripoll inquiry into the Storm Financial collapse, which advocated for the elimination of all conflicts in financial services.

“The same intention was declared by former Treasurer/minister Frydenberg in 2015 and promised by royal commissioner Kenneth Hayne in 2017–19 but the profoundly conflicted vertical integration advice business model has somehow survived despite its well documented detrimental effects on consumers,” the AIOFP said.

The body attributed this persistence to political donations by institutions aimed at safeguarding their “favoured business model”.

“Vertical integration being permitted to exist when product commission was banned under FOFA in 2012 is an idiosyncrasy that should not be allowed to exist – it is however a testament to the power of political donations,” the AIOFP said.

“Now that most institutions have been embarrassed out of advice by the royal commission findings and most have recently declared they are not ‘venturing back into advice’, now is the time to ban vertical integration [but grandfather existing operators]. It is also time for Canberra to retract its massive overreach into the advice industry over the past 14 years, this intrusion has now come to the point where operating a profitable advice business is becoming problematic.”

The AIOFP argued that “both issues need to be addressed simultaneously to ensure sufficient independent advisers remain in circulation to assist consumers”.

Expressing concern over the potential financial strain on advisers and the impact on consumers, the AIOFP warned of advisers adjusting their business models to maintain profitability.

“The recent Dixon Advisory collapse is a prime example of advisers venturing into the manufacturing space to capture margin but lacked expertise leaving a $332 million black hole for their clients. The Dixon executives clearly did not have the manufacturing expertise, they should have just stayed with advice,” the AIOFP said and urged Canberra to recognise the overwhelming dominance of the independent advice sector.

“It is time for the financial services industry to be clearly divided into product manufacturing or advice and the unfair legislative shackles on advisers over the past 15 years removed,” the body pleaded.

Lastly, the AIOFP called for the complete repeal of the vertical integration legislation to protect consumers from a future change of mind by the banks.

“This instance of history repeating itself must be avoided at all costs, both issues need to be addressed simultaneously in Canberra and there is no better time to do it but now.”