Heading back to the future……? The vertically integrated modelRSS icon

Written by Simon Bussy on Friday 27 February 2015

Let’s take a walk down memory lane……. Pre RDR? Oh yes, way before RDR! Pre-Platforms? Yes, pre-platforms too….

Let’s go back to the ‘80s and 90’s, when we had those large commission-fed tied salesforces…. expensive in-house products...... and then add to the mix poorly performing and expensive in-house funds, and an ill-informed and unsuspecting customer.

That was a common value chain of old. The original vertically integrated model. 

Fast-forward to today, and it’s fair to say that we find a much brighter state of the nation – lower cost, more professional, more client-centric.

And yet, one of the (unintended?) consequences of RDR is the recognition amongst an increasing number of players that ‘owning’ more of the value chain is paramount to their future success. Control of distribution, including access to the ‘pension freedoms’ wall of money. Control of a much simpler Centralised Investment Proposition to invest it in. And control of the technology and the processes that link it all together.

Step forward once again the vertically integrated model. The well-documented OMW approach, Standard Life’s recent purchase of Pearson Jones (the first of many?), the revitalisation of the Man from the Pru – all have received headlines and column inches passionately defending or damning the model – or versions of it - that Hargreaves and SJP already follow…….

But an important question has to be - is the model really any different this time?

Personally, I have absolutely no issue at all with organisations looking to secure more of the value chain – it’s a competitive world, a competitive marketplace, and customers - and advisers for that matter - are quite at liberty to vote with their feet (and their money) to select the organisation they want to deal with.

I would argue that when we consider what’s really important, it’s far less to do with ‘model’, and much more to do with trust, integrity, suitability, reliability, a caring and empathetic attitude, managing risk and outcomes aligned to client needs?

The challenge for the vertical integrators, of course, is to address the concerns of their detractors who can justifiably point to history and ‘poor practice’ to back up their argument, and to ensure they pay critical attention to the potential downsides:

  • Economies of scale and operational efficiencies aren’t realised
  • Quality of proposition deteriorates
  • Sharing of information and consistency across the value remains an elusive pipedream
  • Financial benefits gained from ‘market power’ aren’t passed on to the customers; indeed, overall price increases
  • Investment performance is poor.

Such ‘bad practices’ could surely only be sustainable in the short term, certainly not over the long term in a competitive marketplace where the best interests of the customer remains paramount?

The industry will watch with fascination as the latest vertical integrators try to prove that, this time, it really is different….


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