The business model under fire for much of the Royal Commission has escaped punishment in Kenneth Hayne's final report.
In handing over his 76 recommendations to improve the banking and financial services industry in Australia, Hayne avoided calling an end to the vertical integration model - which allows wealth managers to own and operate the entire wealth stack: funds management, financial advice, superannuation and platforms.
Responding to the Commissioner's interim report late last year, Australia's big four banks, AMP and Macquarie said Hayne should avoid recommending legislative action disturbing the model which has been widely adopted by Australian institutions.
These calls have been heard by Hayne, who said to recommend the forced separation of financial advice and those who sell and manufacture financial products "involved significant disruption" to the industry and the financial services industry more broadly.
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This is despite Hayne recognising that conflicts of interest would likely be reduced by separating AFSL holders authorised to issue financial products and AFSL holders authorised to give financial product advice.
He also noted that in addition to the protestations of the big banks (including those who had already moved on significant portions of their wealth arms), ASIC also called for calm and joined the chorus opposed to the structural separation of product and advice. The AFA and the FSU, Hayne noted, also said the same.
For Hayne, while there are clearly conflicts of interest inherent in the vertically integrated model, putting it to pasture isn't the best way to ensure clients aren't subject to those conflicts.
He said that despite its problems, the model also provides consumers benefits espoused by the banks in their submissions, such as economies of scale and the convenience of a relationship with just one financial institution. On a simple cost benefit analysis, Hayne couldn't find a reason to oust the vertical integration model.
The Commissioner also said that if the costs of employing professional financial advisers did not reduce (or continued to increase) as the regulation of the advice industry increases in the coming years, the trend away from vertically integrated institutions may well continue even without him mandating a structural separation.
"Enforced separation of product and advice would be a very large step to take. It would be both costly and disruptive," Hayne said.
"I cannot say that the benefits of requiring separation would outweigh the costs, and the Productivity Commission concluded that 'forced structural separation is not likely to prove an effective regulatory response to competition concerns in the financial system.'"
However, Hayne agreed with the Productivity Commission's recommendation that the ACCC study the effect of vertical and horizontal integration within financial services every five years.