FSC defends vertical integration in PC submission

In its submission, the FSC says vertical integration of businesses is “not a problem in and of itself”, and under the right circumstances is actually a better model for clients.

“With adequate reporting, the right regulatory levers and regulators using those levers as necessary, the FSC considers that the benefits of vertical integration to consumers should far outweigh the perceived shortcomings,” the submission said.

Further, the submission said clients may value the "perceived safety" of working with a large company that can "both deliver financial services and compensate him/her appropriately if ever required."

The FSC also argued the definition of vertical integration should be expanded to include advisers entering contractual arrangements with product issuers, advisers white-labelling products, industry super funds owning the licensee that provides member advice and industry funds developing in-house asset management capabilities.

“The draft report has taken a very narrow view of vertical integration as it only focuses on ADIs owning advice licensees,” the submission said.

“The FSC recommends that the PC should widen its consideration to all types of vertically integrated structures, to ensure its findings and recommendations are appropriate to all such structures. Even if the PC believes the focus should only be limited to relationships existing within the financial advice sector, this broader scope is essential.”

The submission also said advisers consider approved product lists to be “valuable tools in the advice process” that offer numerous benefits to licensees and advisers alike.

“APLs serve as a risk management mechanism for both advisers and licensees as research has already been conducted on the products on the APL to ensure they are suitable for the licensee's clients,” it said.

“APLs for investment products can be particularly helpful in ensuring advisers do not recommend complex, high-risk investments to retail clients whose risk appetites are not aggressive.”