Nic Cicutti, blasts vertically integrated firms as a scam. Is he being fair? Over the top? And does it impact on you?
If you invest with a vertically integrated firm, yes it impacts you. In simple terms its firms like Brewin Dolphin, Quilter Private Client Advisers and Rathbones..and of course, St James Place.
We need to address the ‘scam’ and explain ‘vertical integrated’
Vertical integrated is defined in a recent Money Marketing article as “taking ownership of the distribution chain by running your own platform, advice firm, funds and discretionary models”. The advantage is efficiencies of scale for the firms concerned, which they can pass to the end consumer. Good intentions, but as Nic Cicutti states “Except, of course, they never do.”
A scam is to deceive and defraud (someone). Clearly, there is no fraud, but deception may certainly apply.
Nic Cicutti, says “The article quotes research from Numis Securities showing how some of the largest vertically integrated firms, such as Brewin Dolphin, Quilter Private Client Advisers and Rathbones, are levying costs of between 2.43% and 2.8% a year to manage savers’ money. This compares with an average investment cost of about 2% a year for a typical independent financial adviser.”
Is this all bad? Actually, I have no issue with any firm charging whatever they want. It’s not the amount; it’s whether the consumer knows what they are paying and what they are getting for the money? If consumers invest with these firms but think they are paying less than they are, that is deception. If you invest with a firm that is charging 3% each year to cover financial intermediation and management of your money, you should know you are paying 3%. It’s of no benefit to consumers if the wealth manager says “our charges are 1%” but fails to really explain all the hidden costs and any other costs that the consumer must bear.
Whilst Nic Cicutti’s language may be too harsh for some; it is language that is needed. If it helps consumers understand better their options and have clarity before making decisions about their future, we need more of this language.