Some advisers have warned the rise of one-stop shop providers will cause a downturn in client care, claiming the scramble to expand by consolidation puts profits before fair treatment of customers.
Acquisitions between advisers, providers and platforms have rocketed in recent months, as financial services companies seek to own the value chain from advice to fund management and administration.
A big move in January saw pension and platform business AJ Bell snap up three investment firms to exert influence in asset management. It plans to offer a low-cost range of passives and a model portfolio service aimed at advisers and their clients.
Four months prior to the deal, Mike Hogg, head of platform strategy at Standard Life, forecast the long-awaited arrival of consolidation among platforms.
But some advisers are worried these combined businesses - so-called ‘vertically-integrated’ models – are created solely to increase profits and will fail clients.
Scott Gallacher, director at Leicester-based Rowley Turton, said: “I do not believe the rise of vertically-integrated firms is driven by a desire to improve customer outcomes, but to increase profitability.”
He predicted over time these one-stop shop firms will push their own-brands onto customers using their services, with advisers’ clients among those steered towards in-house provider funds.
He gave the example of Axa Wealth, which closed 115 funds for “commercial reasons” at the end of last year and replaced them with in-house or associate company funds.
“It’s perhaps this restriction in choice that might have the biggest impact on IFAs, as we could be forced to move existing holdings in order to maintain access to appropriate funds,” Mr Gallacher said.
A spokeswoman for Axa Wealth defended its decision, saying the funds were closed following a review, and “appropriate alternative default funds” were selected instead.
Michael McLintock, owner and IFA at Lanark-based Adelp Financial Solutions, said he is concerned clients will be increasingly pushed into passive-only portfolios simply because they are cheap.
“We prefer to make it cheaper by investing in technology, better processes and management and will continue to do so irrespective of cheaper options,” he said.
All costs should be transparent and broken down, he said, contrasting this to St James’s Place’s vertically integrated advice, fund management and platform business, which he accused of trying to “hide advice costs”.
SJP declined to comment.
In October, SJP sought to clarify its pricing structure to alleviate industry criticism over how it charges amid accusations of cross-subsidisation.
But some advisers were less wary of the rise of the consolidated giants.
Dan Farrow, director of SBN Wealth Management, said these business models can help provide “useful add-ons” for advisers’ clients who just want a low-cost platform.
Though he admitted consolidations can create additional costs for clients with an adviser “who cannot be bothered or who isn’t competent enough” to set up a portfolio of passives with an active overlay, for example.
A spokesman for AJ Bell said the firm’s business model is “different from full-blown vertical integration”, adding the objective in purchasing businesses is to build investment solutions for financial advisers, with no plans to purchase any advice firms.
Its passive funds will be “about delivering low-cost portfolio solutions that advisers can offer to their clients, not hiding costs”, the statement added.
Guidance from the Financial Conduct Authority requires firms to ensure the adviser charge is “reasonably representative” of the services associated with making personal recommendations.
It adds: “We do not consider our rules result in vertically integrated firms having an unfair competitive advantage over firms that are not vertically integrated.”
katherine.denham@ft.com
