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Vertical integration and the Cloak of Invisibility

So this post follows on from Professor Cunningham’s excellent post here. He’s the Adviser Lounge’s entire theoretical physics department, an area that can only grow in importance post-RDR.

Anyway, AC’s post got onto vertical integration and this is a bit of a bugbear of mine. If you muck around in marketing strategy circles – and if you don’t you should, it’s a laugh – you’ll quickly start seeing value chain diagrams. These are the ones with lots of Powerpoint chevrons, going from left to right, each denoting someone who does stuff and charges money for it. The 23-year old MBA geniuses who run these sessions (£2,900 a day from any good Big 4 consultancy, bish bosh, we’re in the wrong game lads) will quickly point out that the more chevrons you inhabit, yeah, the more revenue you keep, yeah, and the more synergies (good consulting word) you get, yeah, so, like, if you totally camp on lots of the chevrons then you can snaffle lots of bunce and some kind of heaven will result and can I have my fee now?

The trouble is, that’s hardly ever true. And in our market, it’s hard to think of any part that carries it off. Do I want my platform to manufacture investments? Hell no. Do I want my financial planner to have their own platform that they’ve developed? Hell no. Do I want my back office system to be a custodian? Hell no. Do I want my planner to be my investment manager? Hell no (that last one gets me in trouble sometimes).

The point is that we should all fear vertical integration. Wherever you see it, something’s up. The bundling together of services – whether from provider or adviser side – is a Potter-style Cloak of Invisibility behind which all kinds of stuff can be happening. It’s at the hidden margins where money is made. It’s at the hidden margins where clients lose out. We should have no part of it. Each part of the chain (yeah) needs to feel the white heat of the gaze of a true expert trying to work out if it adds value to the client. That expert is called a financial planner, I think. I’m pretty sure it isn’t a bank’s proposition team, who’re charged with maximising revenue lines over and above the straight (adviser) fees.

Interestingly, fans of the spotty wizard may know (I found it here)that another way of creating invisibility is by using the Disillusionment charm. Disillusionment is a good word, and in Polson’s RDR dictionary (3rd ed) its definition is “propositions from which the advice-giver or any associated company receives a direct or indirect financial benefit if they recommend it.”

DIFs, big advice restricted panels, DFM kickbacks – all the same thing as the vertical integration from the banks. If we’re about rebuilding trust then let’s shine a light onto all this crap and see if we can’t send the little critters scuttling for the shadows.

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