Survival of the fittest will shape industry
Sincethe news of the planned purchase of van Eyk Research by William M Mercer hit the market, as reported byMoney Managementlast week, the question has been raised as to whether the deal, if it proceeds, is good for the financial planning and funds management industry.
It seems strange that this question would be asked of a research house but hardly mentioned when funds management and financial planning groups merge, evolve and break away on a regular basis.
The reason the latter groups do so is because despite the fact that they supply product and advice for the current and future financial wellbeing of Australians, they are commercial enterprises designed to create a revenue stream. Whether that generated revenue is gained fairly and openly is another question and best left to another time.
However, as a number of research groups pointed out in their responses to the recentMoney Management Rating the Raters Survey, research houses are also commercial enterprises designed to earn an income and will engage in commercial activities to do that.
Those who are uncomfortable with consolidation in the market must realise this is occurring across the globe, and the way to provide product and advice to a growing number of people is to build large scale businesses. Smaller players will still exist and survive but they will charge a premium price for a high level service.
Does this mean then that the search for scale, which the research houses are also seeking, jeopardises independence or quality?
Using the comparison with fund managers and dealer groups, it would be difficult to say it would. Smaller players and individuals in the industry who compromise on their own quality or independence can avoid the spotlight for some time before they are caught out. The same cannot be said for the large-scale players, whose misdemeanours and mistakes are made public by competitors and the media.
Evidence of this is easy to find and the past history of the industry is littered with the remains of large-scale players who have dropped by the wayside due to poor performance, business practices or alliances.
Two things will continue to be true in the future of the industry — survival of the fittest and survival of the most reputable. Consolidation will be part of the first because the fittest will provide the best offerings and services to consumers, while others fall away. Whether they are the most reputable will be a matter for the industry and consumers to decide and when they do, their actions will reveal what decision has been made.
The only remaining variable is which path industry players choose to take.
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