Vertical integration and the role of advice

By Jayson Forrest - Managing Editor  - IMAP Perspectives

Vertical integration remains a hot topic of discussion within the industry and one which was keenly discussed by Piers Bolger (Infinity Asset Management/Viridian Financial Group), Matthew Swieconek (Findex) and Paul Forbes (Australian Advice Network) at a recent IMAP webinar on ‘The strategic role of wealth management in a diversified financial services business’.

A significant finding from the Hayne Royal Commission centred on vertical integration. Many within the financial services industry were surprised that the Royal Commission didn’t ban vertical integration. Instead, Commissioner Hayne noted that the enforced separation of product and advice was a “very large step” that would be “costly and disruptive” for the industry. In his findings, Commissioner Hayne said: “I cannot say that the benefits of requiring separation would outweigh the costs.”

But almost 3.5 years later, vertical integration remains a hot topic of discussion within the market, as it continues across multiple parts of the financial services industry.

It was a topic keenly discussed in a recent IMAP webinar on ‘The strategic role of wealth management in a diversified financial services business’, where the Chief Investment Officer at Infinity Asset Management/Viridian Financial Group, Piers Bolger, believes the separation of advice and investment management within a financial services business - if both elements already sit within the business - was very important.

Piers adds this separation between advice and investment management for smaller advice businesses, was particularly challenging.

“A smaller business can completely outsource the investment management, which is fine. But if a business chooses to keep the investment management in-house, then one of the disadvantages for smaller firms is how to provide a high level of engagement within the business - for both advisers and clients - with the overall investment process,” Piers says.

Viridian’s approach to vertical integration and engagement ticks the right boxes. This ranges from providing investment seminars for clients, to high-net-worth client strategy meetings, where a member of the investment team will join the adviser to outline the business’s market views and explain why the client’s strategy has the current structure in place, which helps to support the advice model.

“The investment team is not there to advise the client. Instead, it’s another touchpoint with the client, where we provide information about their strategy,” Piers says. “There’s a lot of advantages to this approach, which has to be set-up properly.

“This clear delineation between advice and investment management works well for us. That’s why we don’t believe an adviser should be advising a client, and also be the portfolio manager when operating a managed account. We believe there is an inherent conflict in doing this.”

It’s a view supported by Matthew Swieconek - Managing Partner, Wealth Management at Findex - who adds that the underlying issue around vertical integration, and subsequent conflicts arising, hinges on whether there is a material benefit to the adviser to recommend a particular product or strategy.

“There are many variations of vertical integration, with no one form,” says Matthew. “At Findex, we believe if clients are fully informed, and everything is transparent and fully disclosed to them, and if the client is in agreement and we are genuinely acting in the client’s best interests, then there can be a place for vertical integration.”

According to Paul Forbes - Chief Executive Officer at Australian Advice Network - for vertical integration to be successfully, it is absolutely essential to have engagement between the advice and investment teams within a group. He says this enables real discussions between advisers and the investment team about portfolio construction and asset allocation.

“That’s how you get engagement,” says Paul. “As long as advisers have a team member who is actively engaged with the investment committee, and who can explain to them what’s happening and why, advisers are happy. That’s because it allows them to concentrate on advice, while knowing what’s happening with the investment and why, which they can convey to their clients.”

As part of its engagement process, Viridian is focused on providing a solutions-based approach for its clients. This includes ensuring that the business is delivering an investment solution that suits the needs of the client.

However, Piers concedes that this investment solution approach doesn’t always deliver in a linear fashion to what the client’s outcome needs to be.

“For example, you might take on risk, so part of that solution will involve how you best manage that risk. However, you’re not going to get that correct 100 per cent all of the time,” he says. “So, one of the advantages of separating the advice piece from the investment management piece, is you can have a holistic conversation with the client.

“As a business, you can draw a line in the sand between the advice and the investments. The adviser can talk to the client about their objectives and needs, and develop an advice strategy that they understand, and then you have the investment professional who comes in and articulates the rationale behind the investment selection.

“And while the investment team might not get it right every time, and the client may not like what they’re hearing, it doesn’t break the relationship between the adviser and the client, which is the most important element.”

Piers Bolger is Chief Investment Officer at Infinity Asset Management/Viridian Financial Group, and

Matthew Swieconek is Managing Partner, Wealth Management at Findex.

This webinar - ‘The strategic role of wealth management in a diversified financial services business’ - was moderated by Paul Forbes, Chief Executive Officer at Australian Advice Network.

A copy of the video can be viewed HERE