One-stop-shop companies that offer consumers financial products and advice have defended their business models, as the regulator prepares to probe them for potential conflicts of interest.
The concern about conflicts of interest at vertically integrated firms is revealed in the Financial Conduct Authority’s final report into the asset management market, published yesterday (28 June), which followed the watchdog's investigation into whether investment products consumers use offer value for money.
The regulator has responded to red flags raised by the industry by saying it will look into issue of providers seeking alternative routes to regain their influence on the retail market.
So-called ‘vertically integrated’ businesses – which own and control every part of the value chain from financial advice to selling products, platform administration and fund management - have emerged in the last few years, and are starting to dominate the market.
Major players using this model include Standard Life, Old Mutual Wealth and St James’s Place.
Each has advice, platform, fund management and product selling arms, designed to capture all the needs of each customer, without the need to use outside businesses.
A spokesperson for Old Mutual Wealth said FCA scrutiny of vertically integrated firms “makes sense” given the proliferation of this business model.
According to the spokesman Old Mutual “seeks to get the best value for its customers” but also works together “to gain a deep understanding of clients and their needs”.
They stressed potential conflicts of interest are managed with strong governance.
“We aim to blend peer-leading capabilities across our business, but the decision about which investment solutions are right for each individual client remains with the financial adviser, where client suitability decisions will always remain sacrosanct.”
Tom McPhail, head of policy at Hargreaves Lansdown, which has a small financial planning arm alongside its fund and platform business, said putting customer’s interests first “is a key factor in the phenomenal success of the company over the past three decades”.
He pointed to recent interventions in the annuity market to force providers to give their existing customers a better deal, as illustrative of what can happen if firms fail on that front.
“We think [ours] is a good model and we’re happy to work with the FCA as they take their research forwards.”
St James’s Place declined to comment on the FCA's remark. However someone familiar with the company said SJP is unconcerned by the FCA’s interest in vertically integrated firms as it feels it would not apply to the business, which came top of Financial Adviser's Top 100 financial adviser firms list last year.
“The conflicts of interest point is aimed more at the increasing vertical integration between product manufacturers and distributors, rather than incumbent models such as that of SJP”, the person said.
“These conflicts may exist where advisory firms have introduced in-house investments to sit alongside third party offerings or where product manufacturers are entering the advice space.
“As SJP advisers exclusively advise on SJP investment products, this potential conflict of interest (in-house versus third party) does not exist.”
Steve Murray, chief executive at Standard Life’s advice arm 1825, said the advice firm only recommends an approach or portfolio structure based on the client’s needs, and ensure they remain fit for purpose by reviewing them on a regular basis.
Responding to concerns raised in the FCA paper about model portfolios – which flagged they are poor value for money, include extra fees for limited additional value, have potentially higher tax liabilities and have poor transparency – he defended 1825’s range.
“[Our managed portfolios] are broadly diversified multi-asset portfolios which invest in funds from across the market. When we launched the portfolios we set investment guidelines covering a wide range of factors including a limit on any one fund manager exposure.”
1825 is “very supportive of any moves which improve transparency and help clients better understand their investments,” he added.
Succession, another vertically integrated firm, declined to comment.
laura.miller@ft.com
