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Grasping the vertical integration straw

Vertical integration... a great example of how businesses find ways to describe concepts which have been discredited.

Once it was called a direct sales force, tied to the products of one product manufacturer. Most of these DSFs were killed off by expensive products and intrusive regulation.

Many of today’s financial advice giants are looking at vertical integration as a ‘silver bullet’ and, like drowning men, they are desperately grasping at the vertical integration straw. The theory is simplicity itself: find an investment partner, set up a joint venture, design a range of risk-rated funds with ‘generous’ charges, mandate these funds to all of your advisers and then you can sit back and watch your share of the profits rack up.

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The success of these ventures depends upon three main factors. Firstly, whether advisers are prepared to be ‘dumbed down’ to the point that they are simply salesmen and also whether customers will pay for expensive solutions when there are many cheaper solutions available from independent advisers.

Finally, it will depend on whether the FSA will allow these flagrant breaches of the commission ban and whether they stop the consumer detriment from these funds.

Dinosaur DSFs became extinct because they failed to adapt. They were out competed by a better design – the IFA. 2013 will see the resurrection of these old dinosaurs; this time with new technology cloaked with the faux credibility of an ‘adviser’ title.

The final word goes to Jeff Goldblum on the wisdom of resurrecting dinosaurs in Jurassic Park, he said: “Yeah, but your scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should”.

Steve Young is commercial director of Sense Network