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Hewison Insights

Vertical Integration – questionable integrity

Glenn Fairbairn
Director/Private Client Adviser
8 Sep 2014

Last year the Government announced the appointment of Mr David Murray AO to head an inquiry into Australia’s financial system. The inquiry will make recommendations to foster an efficient, competitive and flexible financial system, consistent with financial stability, prudence, integrity and fairness. 

Recent discussions relating to this inquiry have focused on the conflicts of interest created by the “vertical integration” of the industry.  Vertical integration is said to exist where the financial advisor is ultimately connected to the institution which offers the financial product the advisor is selling. It has been likened to a doctor being on the payroll of a drug company and prescribing products produced by the drug company to their patients in favour of others.

In response to this criticism, AMP made a second submission to the Murray Inquiry stating that “There is no evidence that ‘independent’ advice is of any greater quality than advice from other business models; indeed advice from ‘independents’ has proved to be the most damaging to consumers and was the driver of the original Ripoll Inquiry”. Following on to say “Only vertically integrated companies have the financial capacity to invest in the development of new and high quality financial advice solutions for consumers, which ensure strong competition and innovation in the market.” 

In my view AMPs submission is self-promoting and blatantly incorrect. There is no question that whenever an institution is manufacturing ‘product’ that there is always going to be a conflict of interest.  I would hazard a guess that the Approved Product Lists of financial planning dealer groups aligned with product manufacturers are dominated by products manufactured by the parent company. So are these products recommended in the best interests of the client?

Further to the above there is often a requirement of institutions to control the output of advice through mechanisation and computer driven modelling whilst independent advice is personally tailored to suit the individual client circumstance and needs.

As an Independent Advice firm our only interest are those of our clients and we have no vested interest in the investments and/or structures that we recommend to our clients. It has long been our view that the only way to remove the conflict of industry that has severely damaged the profession is to completely separate advice from product manufacturing.

Our truly independent status provides clients with the confidence that our recommendations are totally unbiased and based only on their best interests.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.