Vertically integrated wealth management businesses will be dismantled in light of damning evidence uncovered by the royal commission, according to ARCO Investment Management chairman Bruce Loveday.
Speaking to Investor Daily, Mr Loveday said that while Australian corporates have profited by owning both the product manufacturing and distribution arms of wealth businesses, they have lost the confidence of their customers.
“I think that, if not all, then a large amount of the old vertically integrated models will vanish without a trace,” he said.
“I am firmly of the view that it has gotten to such a state where clients, who are the most important part of the equation, cannot be satisfied whether they are getting genuinely independent, relevant advice or not.”
Mr Loveday is also chairman of Burnham Capital and was previously chairman of platform provider Praemium. He believes that while vertical integration doesn’t necessarily mean that advice provided is sub-optimal, it is almost impossible for aligned advisers to prove that they are acting in their clients’ interest.
“It is very hard to satisfy yourself as a client when the same corporate entities control the fund manager that you’re investing in, the adviser providing the advice and quite often the administration platform that you’re using to keep everything together,” he said.
“There is obviously a P&L benefit for the corporate entity if they can service multiple demands of the client through the same corporate structure. It’s usually more profitable for them. But that’s really not the point. The point is we now have a public policy, as we have had since the 90s, that individuals will be responsible for their retirement incomes. So they’ve got to be able to rely on independent advice and advice that is in their interests and no one else’s.”
Three of the four major banks have already made significant changes to their ownership of wealth and insurance business. CBA became the latest to distance itself from its wealth management business Colonial First State, which will be bundled up with an assortment of other non-core assets, demerged from the CBA group listed on the ASX as a separate entity.
While some see this as a reaction to the Hayne inquiry, Mr Loveday believes it has been on the card for some time.
“I suspect that the disintegration of the vertical integration structure was going to happen anyway. I think some of the big decisions announced have been in train for a long time,” he said.
But the royal commission has certainly had an impact on the decisions of wealth companies across Australia.
“If there are any boards sitting around not quite sure about whether getting out of a vertical structure is a good idea, I think they have probably changed their minds now,” Mr Loveday said.
Wealth management relationships are under threat as clients look to switch providers driven by the impact of the royal commission. ...
S&P Dow Jones has announced a new addition to its global ESG index using enhanced ESG scores and granular data. ...
Investor confidence is on the rebound and the ASX hit a 12-year high on Monday. But it’s not all good news for the Australian economy. ...