Sponsored consultancy reports: The new product commission

I used to think of myself as a consultant. I still do – to a degree. I’ve always tried to approach the work with a critical, data-driven, no-holds-barred mindset, that’s constantly challenging the status quo. I cut my teeth in the industry pontificating on what the future of financial planning, platforms and investment management could look like. I offer zero apologies for that.

Then I got bored of that game. I was no longer content with just crunching data and navel-gazing about the future. I wanted to help create that future. I was particularly frustrated by the dire lack of innovation in this industry, and you know what they say about being the change you seek.

So, our research and consultancy shop gave rise to two new change agents: a retirement software business in Timelineapp and a high-tech, low-cost, flat-fee MPS provider in Betafolio.

Lo and behold, it’s become clear to me that it’s far easier to pontificate than to create. And I have to be honest, my patience for consultants is wearing thin these days.

We soft-launched Betafolio’s flat fee proposition in October last year, to take on the discretionary MPS market. This MPS landscape has much of its c£200bn stuck in expensive and underperforming portfolios with the total fee to the client often approaching 2.5% a year. We officially went live in March 2020 and are currently operating through six platforms, and counting.

Our view is that financial planning is where the real value lies for clients. Everything else — platforms and investments — are just commodities. So, we built the technology to do much of the heavy lifting, with the view that advisers will eventually pay for a discretionary MPS the same way they pay for a CRM and other technology they use.

Yet eight months later, a consultancy  published a report claiming their sponsor, launched around the same time as Betafolio, is the only game in town. This is factually inaccurate, but I’ll let you make up your own mind whether it’s a willful omission or a lack of the deep market insight they’re peddling. They only needed to say, ‘other flat-fee MPS are available’ but I’m pretty sure they’d be persuaded to go a bit further if we paid a few bucks.

One of our team members alerted me to the report. ‘Can someone please tell them that we exist?’ he teased. To which I responded that the report was an advert for a competitor. Ha.

This goes to the heart of pay-to-play consultancy reports that have become the bane of the industry today. Providers pay consultants to write and, ultimately, only publish those reports that make the sponsors look good. It’s akin to taking commission on financial products.

Consultants would argue that they retain editorial control, the sponsors are disclosed and their judgement is no way impaired.

As your Nan probably used to say, s/he who pays the piper dictates the tune. Incentive matters.

I used to play this game and wrote at least two of such reports, sponsored by providers for five-figures a pop. While there was no mention of specific products and much of the content was stuff I’d written previously on my blog, I compromised my objectivity and independence because I was beholden to providers in this way. So, I stopped.

As this example shows, pay-to-play reports cloud your judgement, consciously or otherwise. What’s worse is that when I took them to task, it was greeted with a sloppy attempt to shut down a legitimate criticism along the lines of, ‘mind your own business and stop throwing rocks at ours.’ I’ve seen this over and over again in financial services, where folks play the victim when criticised.

Imagine if consultants were subject to half as much scrutiny as the advisers and providers they claim to research. Many of them campaigned against advisers taking commission on products, all the while taking payment to write reports sponsored by providers. They sued for contingency charges on DB transfers to be banned. They seem comfortable deriding platforms and advisers over flat fees vs percentage fees — telling us fees would fall in five years (doh!) and whatnot — all the while getting paid for little more than marketing and PR for providers, branded as research. And when criticised, the best defence they come up with is, ‘leave all the scrutinising to us. We’re only trying to make a living.’ Pathetic.

Naively, I used to think that consultants could make a big difference in helping advisers navigate the mucky minefields of the investment and retirement industry. I’m not so sure anymore. Much of their business model is riddled with conflict, relying on sponsored reports, akin to receiving commission on financial products, while screaming, ‘Transparency! Transparency!’ at the rest of us.

If consultants want to be as truly independent as they claim, they need to find a less conflicted business model — selling undiluted insight/research services that aren’t sponsored by providers. This is not actually that hard. We have a report due out in a couple of weeks where we write what we think with zero influence from anyone. Providers and advisers are welcome to buy it if they like. If they don’t like what we have to say, and would rather not hear it, that’s fine too.

I know I won’t win any favours for saying this. It’s a hard pill to swallow. But I gave up on winning popularity contests a long time ago. And, in an industry where people seemed obsessed with giving positive vibes at the expense of critical thinking (because y’know, folks won’t buy your stuff otherwise), I’m not exactly a model for how to win friends and influence people. 😜

And that’s fine. Better an honest adversary than a false friend. Being free to say what I think is one of my most cherished values in life. I’m all about standing up for what you believe in, which often means standing alone. To each their own.

Abraham Okusanya
Director
Abraham is the founder of FinalytiQ, a research consultancy for platforms, asset managers, and advisory firms. Recognised as one of the country’s leading experts in retirement income, platforms and investment propositions, Abraham has authored several papers on these subjects and delivered talks to the Personal Finance Society, The FCA and several conferences across the country.

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