There are concerns that the DC advisory market is steadily polarising those offering independent services and those that are both adviser and provider. So just how crucial is independence asks Barnett Waddingham head of workplace health & wealth Damian Stancombe
Given that I head a team at a consultancy firm that is built on a strong belief in the value of
independence, you would think my view on this would be cut and dry. But it would be wrong to suggest that acting simultaneously as adviser, asset manager and product provider cannot sometimes achieve value and results for employers. In fact I believe that, in some cases, industry players that act as all three can add value to corporates through their packaged solutions.
Indeed, my underlying belief is that, independent or otherwise, an adviser or provider’s top priority should be to ensure that it fulfils its responsibility to demonstrate transparently to corporate clients whether the services it provides are adding real value. As very different business models, both independent and provider/adviser firms have the potential to deliver positive results for employers.
In saying that, however, I also believe that truly independent advisers have an advantage over the adviser/provider proposition in that they can take an outsider’s view, which frees them from any of the potential conflicts of interest that being attached to a particular product can create.
It appears to me that, more and more, the DC industry is becoming an increasingly commoditised marketplace where various players move into areas that were not habitually core to their business. We have traditional providers that are looking to move slowly but steadily into the advice market and we have consultants that are building their own master trusts and investment solutions.
While I am not opposed to this commoditisation, I think that seeking truly independent advice should always be an option available to corporates and something they should strongly consider.
As there is no attachment to a product, independence gives consultants the freedom and clarity required to properly address the issues faced by corporates around DC provision.
Independence means that consultants have the space to devote 100 per cent of their time to finding the best possible solutions for clients, rather than having to focus their remit on selling a pre-existing product.
Independent consultants are not influenced by product charges or basis point fees and do not face pressure from within to push a certain agenda. This allows them to add genuine value while avoiding the problem of conflicting interests.
The Financial Conduct Authority’s value-for-money requirements mean that independent governance committees must review the performance of schemes. However, if an IGC has been set up and employed by a provider, a conflict of interest could appear.
I will be interested to see how IGCs manage to review schemes objectively in the long term. And, while I agree that it is possible for an IGC to act as a truly independent entity, it will certainly be more of a challenge.
A genuine conflict of interest is set to arise around how the packaged solutions offered by these emerging provider/adviser players are governed – especially when the governance appears to be wrapped into the charging structure paid in basis points from the assets held.
My own experience of Australian superannuation funds on a research trip last year gave me the feeling that the focus of those funds was on their own interests rather than those of their members. The experience served to strengthen my resolve not to build a product at my own firm but to remain fully independent, although it appears this thinking is shared by only a few of our peers.
Overall, the principle of independence is key and is as important as it has ever been.
It is possible for the emerging breed of provider/adviser propositions to deliver successful and efficient results for corporates within the confines of a packaged solution.
However, only consultants that are truly independent can act freely and always in the best interests of a client when assessing value for money.