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Andrew Alcock, CEO of Hub24: "We're seeing the unravelling of a model that can only be good for consumers." Louie Douvis
by Alice Uribe
Independent investment and superannuation platforms like Hub24 and Netwealth are readying to reap the rewards of the "unravelling" of the bank's traditional wealth management models.
That is the view of Hub24 chief executive Andrew Alcock, who said a confluence of structural changes, including banks moving to become distributors instead of manufacturers and the introduction of a best interests duty for financial advisers, may see institutions forced to expand their offerings.
"Advice arms of institutions are having to come to terms with their obligations and that's put a tension on the traditional way they've operated," he said.
"I think it's only a matter of time until most institutions open up their [approved product] lists to provide more choice and ensure they can deliver on their advice obligations. Unless they are going to offer the best of breed solutions for every client they have."
The best interest duty is a key plank of a package of financial advice reforms, known as the Future of Financial Advice (FOFA), introduced in July 2013. This was tested with the corporate watchdog recently ordering Melbourne-based financial planning firm to pay $1.1 million in fines and costs as part of the first civil penalty imposed for breaching its duty to act in the best interest of its clients.
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Last week, BT Financial Group (BTFG) said it would expand its life insurance APL from its sole in-house product, adding a minimum of three alternative insurers by March next year.
In a statement BTFG said its process was designed to help ensure it met its best interest obligations by allowing advisers to request non-APL insurers on behalf of clients.
"However, it acknowledges the move towards more products formally being on APLs going forward," BTFG said.
Mr Alcock said institutions expanding their APLs could "drive the success" of independent insurers, funds managers and platforms.
"We're seeing the unravelling of a model that can only be good for consumers, if the industry embraces it. I see it as a mature, sensible thing to have an open list," he said.
"The test is challenging the status quo and getting institutions to think about vertical integration and independent platforms like Hub24 and others, which could offer a solution if the market matured and thought about that really seriously."
The independent platform market has gained prominence after signing up advisers ambivalent to bank networks following scandals and increased governance processes.
Increasingly, these platforms are snaring a fair whack of adviser business in the $750 billion platform market, which is growing at 10 per cent a year.
According to Hub24, which has seen its own share price rise more than 66 per cent over the last 12 months, non-institutional players, or disrupters, account for 3.05 per cent of funds under advice and 28.7 per cent of net flows annually.
Hub24 provides a menu of more than 1000 managed funds, ASX-listed securities on more than 14 exchanges, term deposits, managed portfolios and insurance providers, which it says provides advisers with a wide range of way to ensure they are acting in the best interests of clients.
Netwealth has a similarly wide offering, providing access to 300 managed funds.
Few institutions have Hub24 on their APLs. One part of IOOF has a white labelled version, but most of the platform business comes from independent licensees and stockbrokers.
This is something Mr Alcock would like see change.
"If you're going to be delivering advice and picking the right products for your clients, then that's a step forward from vertical integration, where there may have been a bias to in-house product," said Mr Alcock.
At a recent parliamentary joint committee on corporations and financial services, Australian Securities and Investments Commission deputy chair Peter Kell said it was looking at whether advisers actually use the full range of products on an APL, even when they are given the option.
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