'Benign instos’ on the rise

Financial services institutions are increasingly moving away from the product push mentality when it comes to the way their dealer groups operate and are adopting a so-called 'benign insto’ model.  

That is according to Pinnacle Practice founder Anne Fuchs, who said the benign insto model allows bank-aligned practices to keep the parent company at arm’s length in terms of the way the approved product list (APL) is constructed, as well as the culture of the group.  

“They don’t push the product but allow financial planning practices access to the deep pockets of the insto,” Fuchs said. “I think that’s a really sweet spot in terms of the way vertically integrated dealer groups operate.”  

While this model is more dominant among smaller institutions, Fuchs noted there was one dealer group owned by a Big Four bank which was seeking to move towards that.  

The last two years have seen some of the large financial services companies make efforts to dispel the myth of the “product push” culture within their advice businesses.  

When the Commonwealth Bank (CBA) acquired Count Financial, the dealer group’s chief executive David Lane told Money Management it would retain its open-architecture APL and freedom of platform choice, strongly denying claims it had become a captive of CBA’s product set.  

Other large players in this space are also claiming to have a similar culture.  

Head of AMP’s financial advice division Steve Helmich said if a customer walked into a bank they would assume they would be sold/recommended a product manufactured by that same bank.  

But when it comes to separately licensed financial planning businesses - such as Hillross, Genesys Wealth Advisers and Charter Financial Planning in AMP’s case - there was a very broad selection of products that planners could use to meet the needs of the clients, he said.  

“Some are manufactured by AMP, but others are manufactured by BT, Asgard, in the risk space we’ve got Zurich - all the providers on the list,” Helmich said.  

“We don’t have any bias to in-house products versus any products on the list,” he added.  

“What we tell planners is it’s their role to pick the most appropriate solutions for their clients from the list, or if the client is already in a better solution to leave them in that solution.”  

The dealer group is there to provide support services to the business in the areas of compliance, training, education and marketing, among others.  

However, Kate Humphries from Pathway Licensee Services said it would be very difficult to argue that financial planning businesses which are aligned to a vertically integrated dealer group are not influenced or biased by the parent company.  

“I hear a lot from institutions who talk about conflict of interest management and about the way they are operating their business so as not to be biased,” Humphries said.  

“But ultimately whenever I talk to practices who have moved away from the aligned space into the independent space they always tell me there was an underlying intention that the planner or the practice would be favouring the group that they are aligned to.”