View more on these topics

Analysts warn vertical integration will face regulatory pressure

Tablet-Technology-Computer-Business-700x450.jpgAnalysts have warned vertical integrated firms risk falling behind rival wealth managers as regulatory scrutiny is set to intensify.

The FCA has recently called into question whether firms such as St James’s Place, Standard Life, Old Mutual Wealth and Hargreaves Lansdown promote their own funds to advisers for their own interests or the end consumer’s.

Shore Capital analyst Paul McGinnis argues risks will be on the rise if firms such as Old Mutual and Standard Life fail to prove a non-conflicting nature of their vertical integrated models going forward.

He says: “At the moment the FCA would appear to be relatively relaxed on the [vertical integrated] model on the basis that they’ve allowed these companies to build and carry on the various transactions in terms of assembling vertical integrated models, but I do wonder ultimately on the conflict of interest there.

“Unless you can demonstrate to the FCA the proper independence between the various parts and that you use your vertical integration to lower the total cost to the client, that would be a good defense, but until we get to that point there is still some risk of assembling that model that might come back when the FCA rethinks about it.”

Brokerage Liberum equity research analyst Justin Bates says while Standard Life and Old Mutual will continue to acquire IFAs, for Old Mutual independent advisers could create “real difficulties” when selling products tied to one provider only.

In October, Old Mutual confirmed it will float its Old Mutual Wealth business in 2018.

Bates says: “The Old Mutual Wealth business that [Old Mutual] is looking to float is in complete disarray. They’ve spent huge amounts on systems and are expecting to continue to spend a lot of money, which seems completely disproportionate…And they’ve bought a collection of IFAs and ultimately they want IFAs to sell their products, which can be very difficult as it depends on the type of advice you are buying.

“But if you are buying a nationwide network of IFAs who are used to their independence, and used to choosing the products they think are best for their clients rather than essentially being a tied agent then you can run into real difficulties.”

OMW has appointed independent chairman in Glyn Jones to its board as well as five non-executive directors since December. He replaced Old Mutual’s chief executive Bruce Hemphill, who stepped down from the board in September.

An Old Mutual spokesman says:“Old Mutual Wealth believes full face-to-face advice leads to the best outcomes for people and we support advice in all its forms. Advice must be based entirely on ensuring a good customer outcome.

“While restricted advisers within Intrinsic can be confident that the panel of solutions has been researched to an incredibly high standard with independent oversight, all advisers make their own professional judgement as to what is most suitable for clients – whether using on or off-panel solutions.”

A Standard Life spokeswoman says: “Across our business, through our adviser and workplace channels and also 1825, our financial planning business, we offer a range of investment options from a number of fund managers to allow those advising customers to construct a portfolio based on the client needs. We are very supportive of any moves which improve transparency and help clients better understand their investments.”

Recommended

8

Lee Robertson: The high cost of vertical integration

Lines have become increasingly blurred between the various elements and disciplines in the financial eco-system. Back office providers are launching robo-advice services, data providers are launching model portfolios and active and passive fund managers are launching passive and active funds respectively. Meanwhile, adviser platforms are offering discretionary services, fund managers are buying platforms and some […]

1

Vertical integration: It’s about fund flows, stupid

Who wants to become the new St James’s Place? According to industry analyst Ned Cazalet, Old Mutual Wealth does, as does Standard Life, as do all the other traditional life companies making a bid to reinvent themselves. Cazalet’s insightful reports (or “provocations” as I have alternatively heard them called) have form in making providers and […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. “Ensuring good customer outcome’s”, yawn.

    How much has been gathered in Platform and Fund holdings since the birth of this restricted monster. How much of that scale has been passed back to unit holders (clients) via reduced OCF’s and Platform charges?

    Look what Vanguard do with their charges as scale increases. Baillie Gifford, Franklin Templeton and others have recently passed on cost savings to unit holders and hopefully others will follow suit.

    OMW seem to be stuck in the dark ages. Buying up IFA firms, gathering assets, and not giving anything back to unit holders. That is a very unattractive to the humble IFA and quite possibly exactly what the FCA is talking about in its asset management paper.

    Virtual Integration may deliver efficiencies to the adviser. Less time doing research etc, but does the adviser pass on these cost savings to the client?

    I would like to know where in the value chain the client actually gains from Virtual Integration.

Leave a comment