CWC Research’s managing director Clive Waller says that vertically integrated businesses are not likely to fully disclose costs simply because they are not required to.
He says the regulator is behind the curve, with the RDR making the restricted route the only sensible one for anyone looking to invest substantially in the advice sector.
Waller believes that much of the advised market will embrace the restricted model long term and that this makes business sense, but he is concerned that, for now, some firms can use vertical integration to hide costs.
He says: “One of the great attractions of vertically integrated businesses is that you can bury costs in manufacture and to some extent in platforms but mainly in manufacture. It has been a huge attraction for some bigger players. It is the regulator’s fault because they have been way behind the pace in terms of disclosure of costs.
“All the asset management paper talks about is platforms and asset managers – it doesn’t talk about wealth managers so are we going to know what they are charging? No.
"As for segregated mandates, they are a wonderful way of burying costs. What is the point of knowing the management charge is 0.3%, if the clients pay 2.3%. But the fact that vertical integration is expensive is the regulator’s fault because they haven’t regulated for transparency.”
The regulator is not entirely silent on the matter.
Vertical integration was mentioned several times in the final asset management review, which noted industry concerns about conflicts of interest as providers seek alternative routes to regain their influence on the retail market. Another respondent cited the risk of poor value for money, including extra fees for limited additional value and poor transparency.
The paper then pointed to its next related study: “The market study into investment platforms will explore how direct to consumer and intermediated investment platforms compete to win new and retain existing customers. It will explore whether platforms enable retail investors to access investment products that offer value for money.”
The review also cross references the FAMR baseline paper, i.e. the creation of “a baseline and indicators” to assess the advice market to produce an annual snapshot of the advice market.
Among its supply side concerns, it listed adviser charges and published new “supply side data” from its work on suitability showing that average advice charges from restricted advisers were 3.57%, plus 0.63% ongoing with independent advisers charging 2.81% and 0.72%.