Peter Johnston of the AIOFP has announced that the association is considering implementing a vertically integrated model for independently owned planning firms. The model will be like those the big banks have, but advisers will have access to six different administration platforms and around 150 different investment products.
Johnston says the Independent Vertically Integrated (IVI) model will give independents a chance against the bigger players in the industry. “Institutions, Industry Funds and SMSF promoters are permitted to cross subsidise advice with platform/administration revenue whilst independents are supposed to survive on a pure business model in a market where consumers are not accustomed to paying for advice. No one can make advice profitable, however, independents are expected to.”
The IVI will use Mercer and FRC independent research. Participants will be independent practices with their own AFSL and ideally members of the AIOFP, says Johnston. PCM will be the quasi product manufacturer, owned by the IVI participants, which structures the administration platforms and delivers either revenue to the practice, or delivers services such as compliance, training and research in the same way the traditional VI models operate.
“The key difference to the traditional VI model is the 6 different administration services will be under Private Label conditions where the institutions are used for the administration/custodial role but the structure/clients/FUA is owned by the advisers,” says Johnston.
CFP Paul Levy said it was about time that advisers formed a unified front, and that the IVI would be advantageous in terms of enhanced lobbying potential and a better platform on which to keep advisers better informed.
He said the take up could be slightly lower than it should be, due to adviser apathy, but he can’t see a down-side to the process. Independent adviser Matthew Ross isn’t so sure however: “If there’s something to do with the bank model, there’s probably something wrong with it. I don’t know if we should be copying the banks.”
Do you think the IVI will create more competition and an even playing field?
Jason Bragger on 21 Feb 2013 10:11 AM
The competitive advantage that independents have is impartial advice. We are able to to choose the best value products for our clients. We can find usually find products that are cheaper than those of aligned advisers that need to subsidise advice. When clients are educated they realise independent advice is not more expensive because the adviser is not limited to products with built in margins to pay subsidies. The benefit for clients is they can be assured the recommendations are solely in their interests. Setting up an inhouse product suite removes the competitive advantage of being independent. It is possible to thrive without product subsidy as an independent by providing high quality advice and service consistently. There are quite a number of firms doing it. Their buisnesses look however very different from the intitutionally aligned businesses and charge solely for advice not product placement or management.
Long Term Cynic on 21 Feb 2013 10:14 AM
By recommending a product you own, you are at least as conflicted as the banks, if not more so. Why would any self respecting independent adviser touch this? Independent advisers can be profitable without the need to leech off product profits. The AIOFP would, however, smash the bank and industry fund competition if they helped design an ultra low cost platform, delivering the components advisers need to best serve clients, and leaving any thin ownership profits to someone else.
Pat on 21 Feb 2013 10:24 AM
Oh dear. I thought the AIOFP tried the "own the product manufacturer to generate more revenue from client accounts" years ago? Didn't it work then?
So, as far as the AIOFP is concerned, as long as the licensee is not owned by an institution, the licensee can have a direct or indirect stake in the products they push to generate conflicted revenue.
As Jason said, th ecompetitive advantage is strong, impartial advice. As soon as you start being paid by the products you sell, you are connflicted and no better than the banks and other instos.
To Long Term Cynic: this is not designed to beat the banks but join them in terms of maximising revenue from product. I can't see how this will lower the costs to the client.
Garth Lovelace on 21 Feb 2013 11:17 AM
I don't fear the banks, rather the banks fear my business!
Wayne Leggett on 21 Feb 2013 12:08 PM
I beg to differ, Cynic. If you are dissatisfied with the options available for clients and elect to "build the better mousetrap", it hardly makes you conflicted if you then recommend it to your clients. That's what we've done. Sometimes the best product is the one you own and control.
Matt on 21 Feb 2013 02:49 PM
What Jason Bragger said x 2; Where is the like button on this website?
Sorry, Peter, have to have a dig...
"in a market where consumers are not accustomed to paying for advice"
Sure, some aren't accustomed to it but maybe those that are giving up on this need to try a little harder. A lot of people are very willing to pay a fee; the hurdle that consumers won't pay fees is more often than not in the advisers head, not the consumers.