Product Subsidies Stop Financial Advisers Being Viewed As Professionals
17 Aug 2016
This is being driven by clients. Post the global financial crisis, clients are looking for independence and agility. There is a question about whether advisers acted in their clients’ interests or in the interests of the adviser.
The subsidising of products and services inside large wealth management companies needs to end before financial planners will be regarded as professionals, according to one of Australia’s most prominent wealth industry executives.
Steve Tucker, former head of National Australia Bank’s wealth arm and now chairman of boutique advisory firm Koda Capital, said that while the Future of Financial Advice reforms had improved transparency and removed most product commissions, clients would assume that the existence of subsidies such as volume rebates led to financial advisers not acting solely in their interests.
Volume rebates are typically paid by fund managers to advisers who place large sums of client money into their products.
“The rationale is that financial planners must be supporting the business if they are receiving a subsidy from the business,” Mr Tucker said. He was speaking to The Australian Financial Review after Koda Capital was named on the shortlist of the AFR Smart Investor Blue Ribbon award for best private wealth manager. The winners will be announced in the Smart Investor magazine this Friday.
Mr Tucker argued that vertically integrated institutions, which both manufacture and distribute financial products, would continue to play an important role in the provision of advice in Australia, particularly for savers whose advice needs were mainstream, who wanted a “good outcome” at a reasonable price, and who were not concerned by independence.
However, he suggested that financial advisers who were aligned to the major players but not directly employed by them would need to make a decision about their future.
“Over time, aligned advisers will need to decide if they want to service the mass market or the sophisticated, specialised markets,” Mr Tucker said.
More the merrier
He said that despite the mushrooming of independent boutique wealth managers such as Koda, Escala Partners, Hamilton Wealth Management and Crestone in the past few years, he expected more to emerge.
Paul Heath, Koda chief executive, attributed the trend towards independent advice houses to customer demand. “This is being driven by clients. Post the global financial crisis, clients are looking for independence and agility. There is a question about whether advisers acted in their clients’ interests or in the interests of the adviser,” Mr Heath said.
“Consumers are starting to understand the benefits of independence and transparency,” added Mr Tucker.
At the same time as demand for independent advice was rising, investment banks were looking to quit the advice business or cut those functions back to a profitable core. UBS, which recently spun out Crestone, was a case in point.
Mr Tucker said he welcomed more competition. “The more the merrier. We want a vibrant private wealth market,” he said.
Koda was established 18 months ago and boasts $3 billion of funds under advice. The firm has 20 partners who have come from rivals such as Macquarie, UBS, JB Were, Myer Family, Morgan Stanley and Godfrey Pembroke. Mr Heath said the firm would eventually grow to about 45 partners.
Each partner typically services between 50 and 70 clients. Koda’s four main services are tax and structuring, investment strategy, philanthropy and family leadership.
Mr Tucker said that there was a trend for clients wanting to pay a flat fee, rather than an asset-based fee. The advantage of a flat-fee arrangement was that it “took any bias towards an activity off the table”, he said.
As the CEO and co-founder of wholesale advice outfit Koda Capital, Paul Heath always had a “well-formed” views about the firm he wanted to create. Independence and client centricity were at the heart of the vision he shared with co-founder Steve Tucker. But while the two concepts are “fantastic marketing terms”, Heath had another use...
Paul Heath, chief executive of independent wealth management firm Koda Capital, admits to “a little bit of eyeball rolling” when NSW Premier Gladys Berejiklian put four local government areas into lockdown on Friday. Koda’s Sydney office is in the same building as a Fitness First gym, which was designated a hotspot a week earlier, so all 45...
Subscribe to Koda insights
*Please note that the majority of research Koda produces and distributes is client-access only. Subscribing to the insights distribution list will only give you access to publicly available Koda reports.