nine years since it depolarised, australia is offering an insight into the pros and cons
While the UK financial services industry awaits the impact of depolarisation, Australia, which underwent the process in the early 1990s, is already providing some pointers to the future.
The Australian financial services market depolarised naturally between 1992 and 1995, with large insurance firms and banks buying up intermediary firms. It is a process which is now being reversed by the institutions themselves.
For example, Perpetual in Australia held a 51% stake in the Investor Security Group. Last week, this stake was sold back to the intermediary.
The Commonwealth Bank of Australia (CBA) had a 51% share in the major network Ipac, but sold this interest back last year.
National Mutual, now Axa, bought three top-10 intermediary firms between 1995-96, Retire-Invest, Bleackleys and The Advisor Group. Rob Adams, chief executive at First State Investments, said the immediate effect was that intermediaries became less likely to recommend parent company products, because they wanted to be seen as independent.
He added: 'To prove this, many reduced their product support for their new owners.'
According to recently published research by the Boston-based research company Cerulli Associates, Australian intermediaries are the most advanced in the world and, because of this, Adams said the Australian market is worth watching for trends.
He added: 'At the moment, the questions being asked in the UK are, 'will money be made out of buying up intermediary firms?,' 'will they be good investments?' and 'will they improve their own distribution by doing so?' If you take the Australian example, the answer to these questions would be no.'
Brett Newman, executive director of the UK branch of Challenger International, said in Australia the policy is that intermediaries have to: disclose all their fees to clients, disclose their relationship with any product providers, provide advice to clients based on reasonable research, and they must have knowledge of the client they are advising.
On this basis, Australian intermediaries are free to enter any corporate ownership structure they like.
As depolarisation reached the region, intermediaries stopped selling life assurance policies and moved into advising on pensions and investment products, according to Newman, a move from taking one off-fees to receiving up-front and on-going commission.
He said: 'One of the main drivers behind the change to how intermediaries in Australia were regulated was the change in pension rules, with the introduction of compulsory contributions. This opened up a large market for investment and tax advice in regard to retirees' pension funds.'
Newman believes a number of conclusions can be drawn from the Australian experience that may be a guide for the future in the UK.
He said: 'When the changes took place, intermediaries started to advise more on tax and investment and moved to a business proposition rather than just taking one-off fees. They have also been successful in maintaining clients' funds under management in wrap accounts and Sipp products.
'Finally, there has been a large amount of consolidation in the intermediary market, The successful firms have been those who provided quality advice and quality reporting services.'
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