Should an advice firm be accepting money from asset managers and life companies in the form of advertising and marketing revenue?
When New Model Adviser® asked national advice firms this question, the response was largely that they did not accept this form of revenue. Many said they did not think it followed the spirit of retail distribution review (RDR) rules that came into force in 2012.
But there is one company that believes paid-for access to its planners by providers is mutually beneficial and does not contradict the spirit of the RDR.
In 2015 and 2016 consolidator Succession recorded revenue of £750,000 a year labelled as ‘advertising and marketing services’. That equated to 26% of turnover in 2015 and 30% of total turnover in 2016.
New Model Adviser® found the figures in financial statements filed at Companies House by Succession Group, a subsidiary of Succession Holdings, the main company behind the advice group.
Succession Group is not Financial Conduct Authority (FCA) regulated in its own right and was set up in 2011. It is only in the last two years that advertising and marketing has made up such a large proportion of its revenue: in 2014 total turnover was £1.1 million with only £48,000, or 4%, coming from advertising and marketing services.
At the group level Succession Holdings secured revenue of £36.3 million in 2016, bringing advertising and marketing revenue in at 2% of total revenue for the year.
What do businesses get when paying for advertising?
Succession said a high proportion of Succession Group's revenue comes from these contracts because it offers a high level of 'access' to advisers to its strategic partners. Succession currently has 17 such partners who have entered formal advertising contracts with the company.
Mark Stokes (pictured below), group proposition and marketing director at Succession, said the access ranges from adverts on internal websites to events offering continued professional development (CPD).
‘This is legitimate advertising revenue from strategic partner firms for advertising in several publications, banners on our website, our intranet sites etc,’ he said.
Stokes said strategic partners do not contribute to the cost of the training Succession provides for its planners.
'Across our business we have assets under influence in excess of £10 billion and 18,000 clients. Our strategic partners participate in and assist with our CPD and training and competence delivery programmes, but do not as yet contribute to these costs.
'Access to our own planners and infrastructure provides tremendous value to their businesses and allows both parties to meet their obligations in relation to responsibilities of providers and distributors for the fair treatment of customers.
'As does the bespoke management information that we produce under our agreements with them.'
Alongside these adverts and training, Stokes said strategic partners can see a ‘huge amount’ of management information gathered through the Succession platform.
Succession also has an investment matrix which, according to the Succession website, gives advisers access to cheaper investment solutions.
Stokes said there was no connection between strategic partner payments and those who appeared on the investment matrix.
‘Yes, there is some crossover [between the two groups of providers] but there are a number of strategic partners who are not on investment matrix and vice versa,’ he said.
'Spirit of RDR'
New Model Adviser® approached other national firms to see if they also entered into advertising contracts with providers.
LEBC’s revenue for 2016 was £15.7 million and chief executive Jack McVitie said none of this had stemmed from contracts with providers. He said advertising contracts with asset managers contradicted the spirit of the RDR, even though it did not break any Financial Conduct Authority rules.
‘I thought all that kind of thing had stopped with the client benefit rules. That was my understanding of it.
‘Isn’t the whole point of direct benefit rules to stop people securing distribution over and above client remuneration?
‘This is not something we would have thought to do.
‘It does seem to be against the spirit of RDR and what we are all trying to achieve,’ said McVitie (pictured below).
Bellpenny is a consolidator firm that recently merged with national firm Ascot Lloyd. Financial statements for the consolidator before the merger show 2016 turnover of £16.8 million. The company would not comment any further than stating it has no advertising contracts in place with any providers.
National firm Chase De Vere said it was surprised another firm would have such contracts in place.
‘We have no advertising or similar agreements with asset managers or product providers. We are very surprised that any or in existence at all with any companies,’ said Chase De Vere head of communications, Patrick Connolly.
Rory Maguire is managing director of Fundhouse, a research agency that charges advisers, instead of asset managers, for fund ratings.
Maguire took the view such commercial arrangements could compromise the independence of an advice firm.
‘The commercial reality is you have an advice firm that then has the added challenge of knowing there are certain product providers they need to keep happy because they are spending lots of money on them.
‘We are of the fairly firm view that advice needs to be independent and there is a moral dimension to financial advice that requires us to have a higher standard when it comes to these things.
‘Having product provision go in to a space where it is actively creating a commercial conflict for an advice firm, where an advice firm is making a revenue off a product provider, that for one seems an obvious conflict and one that should not be there,’ said Maguire.
Succession disputed it was acting against the spirit of RDR or introducing any conflict.
Stokes said: ‘Succession has always worked to observe the letter and spirit of RDR.
‘We don’t believe advertising contracts go against the spirit of RDR and do not represent a conflict of interest.
‘Succession Wealth Management planners are independent and free to recommend what they believe is suitable for the client. Our client offering is extremely competitive and as you would expect of a business of our size we look carefully at all possible revenue streams.’