Vertically integrated wealth management providers who are crystal clear about what products they offer shouldn’t be trying to comply with regulatory guidance that is designed for full service providers, according to legal regulatory consultant Claire Wivell Plater.

The lawyer, who founded The Fold Legal and sits on a number of financial industry boards, says historic approaches to regulating vertical integration in advice miss the mark for advice practices that advise on proprietary products.

In a recent submission regarding the Quality of Advice Review Terms of Reference, Wivell Plater pointed out that there is “little, if any, guidance for… entities with avowedly vertically integrated advice models”, including super funds, managed account providers and large financial institutions who provide advice on their own products.

“These businesses have no desire to offer products or solutions other than their own,” she stated in the submission. “If they are transparent about the fact that they provide an inhouse or preferred solution, much of ASIC’s guidance on quality financial advice and compliance with the best interests duty is unsuitable for their business model.”

Those businesses struggle with the current settings, Wivell Plater continued, which many interpret to mandate broad-based approved product lists and consideration of alternative products in all situations.

As long as a vertically integrated practice makes its position clear, Wivell Plater argues, they should be able to feel comfortable recommending their products to a client if those products meet the client’s needs and objectives – without addressing the broader market.

“Everybody’s allowed to design their own service,” she says. “If I go to a Toyota dealer, I know they only sell Toyotas, I don’t go there looking for a Hyundai or a Mercedes. They’re branded Toyota, and help with Toyotas is what I’m expecting. That’s what an avowedly vertically integrated business looks like.”

Approved product lists are appropriate for businesses that choose to offer a broad palette of products, she continues, but not all advice businesses do. Further, the lawyer notes, they’re not necessarily required to under ASIC’s RG 175 (356), which states: “The best interests duty does not prevent or require the use of approved product lists.”

Providers of managed discretionary accounts in particular, she says, feel constrained by a lack of clarity on the appropriate guardrails.

“There’s this perception that every advice business must have an APL, but, for example, why would an MDA provider have one?” she says.

“They design their MDA product with their client base in mind; if it isn’t suitable for a potential client or there’s no good reason to switch out of the client’s existing product, they would simply decline to provide ongoing investment advice.”

On Friday Treasury released its final terms of reference for the Quality of Advice Review, where vertical integration was not included as a focal point.


6 comments on “Product advisers ‘tying themselves in knots’ over regulation”
  1. Avatar

    I guess the question to answer is what would be the impacts of a return to the days of tied agents because that is what is at stake if in-house advisers (any of those with their own vertically integrated products) do not need to have regard to the clients best interest or ‘broader considerations’ under the Code of Ethics when providing advice. Would love to see the ‘lack of advice’ warning that would need to be given…would have to include a declaration of the conflict of interest and lack of independence of the advice. But we know that consumer’s disregard disclaimers anyway. This isn’t the direction I want to see

  2. Avatar
    Darin Trounce

    If you want to compare a vertically integrated practice to a car yard. And allow them to only recommend their own products without at least comparing them to products currently available in the market which may be better suited for the clients needs, then perhaps those firm should advertise themselves as product salesmen and not financial advisers?
    At least then the client has a clear idea that the person they are dealing with is a salesman not potentially not looking after their best interests.
    Otherwise, why not include comparisons against other products and clearly explain why they should choose your product over the others.

  3. Avatar

    Does DDO and the requirement to issue a TMD help here? Product providers have to define the market for the product which, in itself should mean greater transparency or, at the least, less wriggle room for the subterfuge. Maybe this is one of Haynes J recommendations that may just work to change the industry?

  4. Avatar
    Malcolm Weatherley

    Interesting dilemma, a product that most people need to have and an Advice Industry that cannot provide simple low cost advice in it’s current state. Perhaps a clearly defined & low cost advice offering from product providers can leave many consumers who can’t afford or don’t want comprehensive Advice in a better position?

  5. Avatar
    Daniel Cunningham

    As long as people like Claire compare us to car salespeople, we’ll never be seen as the trusted professionals most of us are

    Having worked within a vertically integrated business before, I believe no product manufacturer should have a place in financial advice

  6. Avatar
    Mark Fordree

    You are spot on Claire.

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