BT’s annual study tour this year took advisers to the United Kingdom.
The five-day trip included meetings with advisers, investors and industry bodies. This short article is part of a series of key lessons learnt from the trip.
The accepted wisdom in Australia is that vertical integration in financial planning is not a good idea. In the United Kingdom, it is quite prevalent.
Vertical integration in financial planning refers to bringing processes, production and or execution of advice in-house. Advisers take greater control, and they are remunerated for it.
In Australia, advisers do not collect fees from the investments they recommend. In the UK, advisers can build and distribute their own products and collect a margin which provides another revenue stream for the business.
It is particularly prevalent in the UK among practices looking to grow.
First Wealth solution
One example is First Wealth. First Wealth is a B Corp company, meaning it has received a certification saying it meets high standards of performance, accountability and transparency. One of its values is to ‘make a difference’.
First Wealth’s business goals go beyond profitability. They include making a positive impact on society and changing the perception of financial services. First Wealth makes no excuses for running a vertically integrated business, saying that advice fees alongside asset-based fees is part of its sustainable business model.
To achieve First Wealth’s goals takes scale and money, and vertical integration allows that.
First Wealth is not alone in the UK, in trying to develop a sustainable model. The UK is very similar to Australia in respect to falling adviser numbers and increasing demand for clients to get advice.
The solution for some of the companies visited on the BT UK Study Tour is vertical integration. It allows several sources of income, which in turn enables firms to develop ways to service more clients.
True Potential solution
True Potential is another vertically integrated firm providing investment management, technology and planning services. With 491,000 clients, GBP35 million in revenue and a 98 per cent retention rate, the model works.
True Potential uses multi-asset strategies to attempt to achieve its mission of maximising returns over the long term, managing risk and volatility and lowering the cost of ownership. It’s portfolio options run from defensive to aggressive and include cautious, balanced and growth.
Critical to True Potential’s success is its communication with clients with daily morning markets notes, weekly webinars with the investment team, and a ‘Do More with Your Money’ podcast as well as monthly and quarterly updates.
The message from the UK: vertical integration is not all bad – in fact it can benefit clients in many instances.