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A marketing consultant is warning colleagues about a danger that many might have missed: The possibility that big, rapidly growing private equity "rollups" could create invisible conflicts of interest.
Peter Dziedzic talked about his concerns in a commentary posted earlier this week on LinkedIn.
Dziedzic is an attorney who is now president of Life Insurance Strategies Group, a firm that helps life insurers and other financial services firms reach ultra-high-net-worth life insurance prospects.
He noted in the new commentary that a private equity firm or other entity could get cash from life insurance companies, asset managers or big financial services wholesalers, then invest in financial services technology firms and product manufacturers, as well as in firms that work with retirement savers and other clients.
If a private-equity-backed technology firm creates a great life insurance illustration system and offers it to affiliated financial professionals, a financial professional might use the illustration system to help build and manage a client's portfolio.
"The tool defaults to a shortlist of carriers that happen to be 'well integrated,'" Dziedzic wrote. "Those carriers also happen to have the strongest economic arrangements with the platform. The platform's coaching team has a preferred process for product selection, because standardization creates efficiency. The grid is slightly better on certain solutions because scale earns concessions. No one says, 'Push Carrier X.' No one needs to."
Dziedzic recommended that financial professionals guard against problems with invisible, or nearly invisible, "vertical integration" by looking at who owns technology platforms, independent marketing organizations and other potential business partners, and then identifying the owners of the owners.
Financial professionals need not necessarily reject relationships that involve potential conflicts, but they should try to be aware of the potential conflicts and try to make sure any recommendations put the needs of the client first and don't simply reflect subtle biases created by ownership structures, he said.
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