One platform honcho told me that within just a few months of a larger firm being acquired by a vertically integrated advice business (we can’t name names), an amount getting on for nine figures had moved. That’s motivation. But it’s also where regulation meets economic reality, and oftentimes that isn’t pretty.
Does it all come back to fees?
Price and suitability are not the same thing; something cheap and unsuitable is still unsuitable. But a suitable proposition being replaced with another one, no more suitable and at a higher price because of the new ownership structure of a firm, is a very rum thing indeed.
There are six main areas of charge for clients (see Box 1). Of these, four are typically in line with the wider market in vertically integrated firms. For example, we find the average on-platform, ongoing adviser charge to be in the region of 0.8 per cent; that’s not hugely far away from most of the vertically integrated shops.
Platforms and products aren’t that different either – some are actually very low-cost compared with what a non-aligned adviser may access. That might give us heart that VI should indeed result in lower charges.
Where we do find differences, though, is in the price of the centralised investment proposition, and in some cases its composition. As a result, it’s entirely feasible for clients of vertically integrated propositions to face 3.5 per cent initial adviser charges and ongoing fees covering advice, platform/product and centralised investment proposition of well above 2 per cent (and sometimes more than 3 per cent) a year. And yes, it’s possible for adviser clients to have a similar experience. But what we want to see is whether the fundamental tenet of VI holds true – that there is more margin to go around and so the client does better.
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There are two ways of looking at the vertically integrated customer journey. First, objectively, systems should speak to one another along the chain, and whoever needs to access information to service the client should be able to do so. In addition, handovers between advice and discretionary fund managers should be seamless; technology links should be fit for purpose; costs should be fair and on a downwards trajectory to reflect the benefits of increasing scale; and, above all, the client should never, ever be worse off because they are taking the VI route, be that in terms of cost, investment options or service.
The other way of looking at all this is subjectively, specifically through the eyes of the investor. How are they better off taking the VI option instead of having an independent planner put it all together? Are they better off? Is there a better service experience? Lower charges? Better investment choice?
