Convergence choked by product manufacturers
Convergence among financial advice service providers will remain restricted due to control of distribution channels by product manufacturers interested primarily in volume.
HNW Planning chief executive Robert Cumming said service providers such as accountants, mortgage brokers and planners would still converge but find themselves pressured by ‘wholesalers' interested in the promotion of their line of products over the interests of the adviser's clients.
Cumming said this control of distribution channels by product manufacturers was an area many accountants who might enter financial planning "find quite revolting".
"Product manufacturers are for want of a better word ‘wholesalers'. Wholesalers by their nature are interested only in volume times the margin per unit sold," Cumming said.
"At the level our wholesalers deal with us there is no Diminishing Marginal Rates of Return for them like there is for us. Wholesaler BDMs are measured on new FUM, or total loans and various other volume rather than qualitative measures."
According to Cumming, this clash of interests takes place at every point an adviser deals with product manufacturers who "control the adverts and most articles we read, they sponsor our industry events and many licensee professional development days".
Cumming stated there is a concentration of information in the market that does not support convergence, but advisers need to be aware that clients can tell when their best interests are not being served.
"There is very little thinking that goes into whether your or my accounting or mortgage broking business is profitable or not, or is an activity in the best interest of my clients or not," he said.
"If you wanted to meet your sales target this year for the product manufacturer you worked for, would you encourage your financial planners into convergent business models or would you want them to concentrate on the sale of your single line of products?"
AUTHOR
Jason Spits
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