Vertical integration still problematic for advice
Vertically-integrated financial services businesses continue to be a problem for the financial planning industry, particularly where they are seen to be recommending their own products, according to Certainty Advice Group principal, Jim Stackhouse.
Referencing recent media coverage of the Evans Dixon product, the US Masters Residential Property Fund, Stackhouse said he believed the laws continued to fall short of protecting consumers from vertically-integrated business models.
He said that, as well, too many clients trusted that their advisers had done appropriate due diligence on the products they were recommending.
“That is what people pay for. And when they’re getting poor advice, they still don’t leave,” Stackhouse said.
“There are often high fees on turnover of assets, which make it harder to close funds. People are busy, they don’t have time to do all the research, and they trust their adviser to do the right thing. And a lot of these institutions know this,” he said.
Also referencing the recent media reports, Albury based Certified Financial Planner (CFP), Anne-Marie Humphries said she believed the problem about conflicted advice was that it was about ticking boxes.
“Vertically integrated institutions know how to tick the compliance boxes under the existing framework to protect themselves, while still recommending ‘in-house’ products to their clients. It may not be the best option for the client, but it’s legal, and they can do it,” she said.
For his part, Stackhouse said he believed that trust in financial advice could not be built when conflicts were present.
“It all comes down to how advisers are paid – disclosure is not enough,” he said. “Renumeration structures drive culture; unconflicted remuneration where clients pay for advice directly rather than advisers being paid from products is the best way.”
Recommended for you
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.
