After the Hayne Royal Commission many advisers decided to steer away from large dealer groups in favour of becoming self-licensed. In the last six months, however, that trend has taken an abrupt turn.
While known for being the flagbearer for financial product providers, the Financial Services Council is now making serious inroads into the financial advice sector.
Vanguard goes all-in on ‘lightly regulated’ advice pitch
Vanguard has been clear on its desire to enmesh itself in the domestic advice market, but the ETF provider’s Quality of Advice review submission goes a step further by encouraging a “scale of regulatory compliance” that would enable a broader swathe of the Australian public to afford advice.
Vanguard’s plan to bring low-cost advice to the masses via online investment in passive funds has, however, raised concerns about a return to the kind of large-scale vertical integration abandoned by the banks in the wake of the Hayne royal commission.
Its recommendation to decrease consumer protections, in particular, is being seen as a red flag by some stakeholders. Vanguard’s vision is to introduce a scaled version of compliance “ranging for unregulated information to lightly regulated personalised guidance with increasing protections for limited advice through to comprehensive advice.”
In essence, Vanguard wants to open advice up to the types of models into which its products can fit at scale. While Australia is a global leader in advice, the provider argues, its regulatory system is preclusive and lags behind the US, for example, where it offers “both digital-only and hybrid offers to suit consumer preferences, circumstances and needs, with both utilising a significant amount of technology to provide quality advice at scale.”
Given the Quality of Advice Review has incorporated ASIC’s Access to affordable advice project and is being geared towards getting advice to more than a fraction of Australians, Vanguard’s pitch is likely to be considered by review leader Michelle Levy.
The trojan horse
According to Stockspot founder Chris Brycki, Vanguard’s plan would entrench vertical integration more deeply into the sector.
“Vanguard’s submission is partly to allow them, through robo’ and hybrid, to sell Vanguard products,” he tells Inside Adviser. “Vanguard has put the US as an example of what works, but I actually think that’s an example of what doesn’t work.”
A stark pullback on consumer protections isn’t required to provide Australians with more access to advice, Brycki argues. The access to advice issue shouldn’t be a trojan horse for vertical integration.
“If you read the Vanguard submission it sounds like no one is able to give robo-advice, but if you look properly there are quite a few providers that do it, they just don’t do it with their own products.”
Stockspot is one such provider, offering ETF-based portfolio management with asset-based fees ranging from 0.4 to 0.6 per cent of assets under management.
The danger isn’t so much in what Vanguard would do with reduced regulatory parameters, he adds, but what other providers could do.
“To Vanguard’s credit, if anyone was going to do this well it would be them,” he says. “They’re a highly ethical provider that acts responsibly, but if they change things it opens the market up to bad actors. They’ll do a good job, it’s all the other guys that will come.”
Good actor
Vanguard has worked hard over the last decade to become what it refers to in the submission paper as an “advice stakeholder” in the domestic advice ecosystem.
On top of the $11 trillion (AUD) investment management company offering 410 managed funds and ETFs, it also assists a purported 10,000 Australian advisers with “tools, thought leadership and other services”.
The provider is also due to launch its own superannuation fund before the end of 2022.
Given what’s at stake for the provider – a foothold in an Australian retail market buoyed by a $3 trillion superannuation nest egg – the Quality of Advice Review’s outcome will be critical. In an editorial published last week Vanguard’s head of corporate, Robin Bowerman (who also signed off on the review submission) made clear that the key to the review’s success would be “striking a balance” between consumer protection and access to services.
“The gold standard of compliant advice in a post-royal commission world has effectively become the only standard,” Bowerman stated. “Yet investors have a broad range of needs from basic to complex which is hard to accommodate within the regulatory framework.”
