That’s what VI should feel like: seamless, controlled and consistent, with the benefits of scale built into the costs.
Sadly, in our work we have found that no one vertically integrated provider really achieves this. Everyone is let down to some extent by one or more element across the chain.
What causes this? We think it can be traced to one overarching flaw: the disconnect between different parts of the VI chain.
There’s more than one case where passing the client from adviser to DFM works more effectively when the adviser is outside of the chain. Where this is done internally, the respective systems don’t ‘talk’ to one another.
There’s a great deal of very complicated business process behind this, but the client’s reality is that they have to call (at least) two different people within the same business to answer questions on what is, to them at least, one investment.
The same point stands for investment offerings. Carefully chosen and managed funds may be promised, but these can often be accessed by other means and at a lower cost. Where options are limited to the DFM of choice, is that always in the client’s best interests? And if so, how?
You are what you do, not what you say you’ll do
It’s hard to run advice businesses at scale – especially if you’re a provider and in danger of eating the lunch of your independent supporters. Profitability is tough – what profit there is tends to come from the investment solution side of things – and that’s reflected in FCA stats which show that yield on assets for VI platforms is only a few basis points higher than their standalone counterparts.
The universal issue is this: the need to feed the many mouths in the chain outweighs any motivation to pass on scale benefits to the client. Paying a premium for superior service is one thing, paying a premium for mediocre or substandard service is quite another.
And if clients want independent advice, and if the new breed of large firms wants to retain independence and still flow money to its most profitable solutions – that is, the in-house ones – then we are back to the same old conflicts we know so well from the pre-RDR days. Truly: nothing new under the sun.
Mark Polson is principal of the Lang Cat
