Sent: 23-06-2009 12:25:02
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The Structure of Financial Services
A couple of weeks ago I wrote about the provision of advice to lower income earners.
My argument was that the tax and transfer systems that buffets their lives are so complex that they must seek advice. Further I argued that the advice regulatory environment and our litigious society makes the provision of that advice too expensive for most lower income earners.
Needless to say my arguments raised a number of comments from many interested parties.
One aspect of financial services which people seem to have trouble with is its over-arching structure.
Financial services is a three-tier distribution model which is very similar to most industry sectors in this country. We have manufacturers (fund managers and platform providers), distributors (financial planning licensees) and retailers (financial planners and direct distributors). Swimming around these layers are other product and service providers.
One of the tricks with financial services is to realise that some organisations perform more than one of these tasks. For example take our big four banks. They all manufacture product and manage money, they run financial planning licensees and they employ the financial planners.
Although they may perform more than one task internally most are structured around these three tiers.
Across these different layers is a labyrinth of inter-connectivities which is almost impossible for anyone but insiders to understand.
Unsurprisingly the financial services industry seems to be getting a lot of attention from Canberra.
The draft IFSA super charter released last week may be a pre-emptive strike to ensure that the industry can partly regulate itself. But it still asks the government to formally regulate some areas.
There's a view doing the rounds in the US that big business loves regulation because it reduces the opportunity for competitors to enter a market. Some big financial houses have become so large that they are deemed too important to fail - even if their business practises have been unwise. The argument runs that these big organisations are little more than privately owned parts of the government (although some of them now partly or fully owned by the government via stimulus monies and guarantees).
But onto another part of the issue. One excellent point which the IFSA charter makes is, "as long as differential tax treatment applies, investors that choose to pay for their advice outside their super account will pay more for the same service as those that choose to pay from their super account."
This does require legislative action. Such a policy change by the government would dilute the longstanding policy that capital costs are not deductible.
In any event the main challenge for IFSA is to move this policy into existing products and other product areas which its members offer especially non-super investment products and insurance products.
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.