The Australia Bankers’ Association tackled the issue of vertical integration in its submission to the Senate Economics References Committee 'Scrutiny of Financial Advice' inquiry.
The association’s 24 members include the big four, Bank of Queensland, Bendigo & Adelaide Bank, Citibank, ING Direct, Macquarie Bank and Suncorp Bank.
The submission acknowledged recent “commentary in the financial advice community” surrounding vertically integrated models stemming from media coverage and the Financial System Inquiry.
“The vertically integrated business model that has focused most attention is where one or more companies in the same corporate group manufacture financial products and one or more companies in the same group provide financial advice,” the submission said.
“It is suggested that the related entity legal relationship and the potential revenue contribution to the product issuer arising from the recommendation of its financial products by the financial advice business creates a conflict of interest.”
However, the lobby group’s submission rejects the premise that there is an implicit conflict, instead arguing that vertically integrated business models present a number of legitimate competitive advantages.
“For consumers, vertically integrated business models offer a value proposition of investment, innovation, specialisation and capital strength,” according to the submission.
“A relationship with a bank, across the financial services value chain, can allow the bank to develop a better understanding of the objectives, financial situation and needs of their client, and therefore provide better quality financial advice and, where reasonable and appropriate, better targeted product solutions.
“Consumers can also access different types of advice suitable to their needs and circumstances across different channels, including face-to-face, verbally, online and more innovative advisory solutions.”
The submission said that the current requirements for disclosure and management of conflicts of interest are sufficient to mitigate any conflict stemming from vertical integration.