Despite several laws introduced to protect consumers from the inevitable biases that can creep into financial services, true independence remains a relatively rare commodity. Financial services firms are prone to lean towards advice that favours their own products.
The other problem that consumers face is comparing financial products with sometimes subtle differences, such as hidden fees, that can cost them in the long run.
“Independence means you are not pushing a product but giving advice that is not biased towards a particular product that generates a commission for the salesperson, but serves the long-term interests of the client,” says Charles Brits, sales manager at Wealthport.
It is important to remember that tied agents are limited in what they can offer contractually and must disclose, whereas independent financial advisors who limit their offering are doing it out of choice. “That’s not to say that all tied agents don’t give good advice, but they may be limited in their offering,” adds Brits.
Linked investment service providers (LISPs) generally have alliances with asset managers, and being owned by the asset management companies creates a bias in the advice being dispensed – not to mention higher costs that eat into long-term growth. That cost difference can be 0.25% but is often higher, which may not sound like much but over 20 or 30 years makes a significant dent on final savings outcomes.
“Whichever route you decide to go in terms of advice, it is important to compare what is being offered to the rest of the market. With non-independent advice there might even be a cheaper option, but it may not necessarily be the best,” says Brits.
“Clients need to look at the total cost on the platform using the widest range of building blocks and how this will benefit them in the long run.”
One of the more obvious drawbacks of non-independent advice is limited choice of investment products.
Brits says financial services companies often place clients’ funds into their own unit trusts and model portfolios, which means they may not be getting the diversification or balance they need for their long-term financial goals.
“We challenge advisors to think differently about how to best service their market,” he says.
While traditional platforms typically offer a range of unit trusts, Wealthport seized the gap by offering exchange-traded funds (ETFs), unit trusts, structured products, model portfolios and retail investment hedge funds, all available via different investment vehicles, such as traditional bank-type structures as well as endowments with additional tax benefit structures through life insurance companies, for example. It also makes hedge funds, historically reserved for the very wealthy, available to ordinary investors.
Wealthport forms part of the Telesure Investment Holdings Group where each business is independently run. While scrupulously maintaining its independence, Wealthport has brand associations with the likes of Absa, Investec, Grindrod Bank and Old Mutual Wealth.
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“We have not reinvented the wheel. A lot of other platforms are built on older systems and have had to integrate a number of different systems to make them work. These are legacy issues [and] some providers are [finding] it difficult to keep up,” says Brits.
Rather than offering a platform with thousands of unit trusts and ETFs, Wealthport limits its selection to roughly 150 unit trusts and 145 ETFs. New funds can easily be added should financial advisors request them, but the objective is to offer a wide enough choice to meet the demands of the market. Wealthport can also offer a specific fund that an advisor has specifically arranged for their own clients and can ring-fence it to that advisor only.
The advantage of Wealthport’s cutting edge platform is that there are no closed periods, while some platforms enforce a two-week delay before executing on advisor instructions. This means instructions to transact can be actioned at any time, which is vital when a market turn is under way.
Says Brits: “A lot of providers allow clients to buy ETFs, shares and unit trusts directly. This is not the space we want to be in. We’re of the opinion that with good financial advice, clients will do better in the long run.
“We don’t incentivise financial advisors to support any specific unit trust, index fund or discretionary fund manager. [There are] no distribution agreements with any business like that. [We] just want to offer the broadest range of building blocks.” All rebates received from any asset manager are passed on to the client by discounting their fees to the same value.
A key reason for the introduction of financial legislation for consumers is to create transparency in terms of costs and product features. In the past, consumers were buying financial products with hidden costs, and rebates from product providers were gobbled up by the managers and advisors. Brits says Wealthport set out to raise the bar in terms of transparency and costs.
“With us, what you see is what you get. There is full transparency. Rebates are returned to clients and help reduce platform fees, and it is worth noting that there is a move towards clean-priced funds where rebates are not applicable.”
Brits says independence is the most appropriate way of investing. “Our message to financial advisors is to give your clients the kind of choice, transparency and cost-effective investment options that help them grow their wealth. That’s what clients expect, and that’s what most financial advisors are trying to deliver to their clients.”
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