Research by independent financial research company Defaqto found that outsourcing the management of clients’ portfolios to a discretionary manager is becoming a real option for some advisers, and not just for their ultra-wealthy clients.
Fraser Donaldson, author of Defaqto’s guide and Insight Analyst for Funds, said: “There are solutions out there that use off-the-shelf, pre-constructed risk rated portfolios that are predominantly collective investments.
“By restricting or removing the provision of face-to-face portfolio manager meetings, keeping all communication through the adviser, means that all of a sudden there is a discretionary service that is economically viable for clients with as little as £10,000 to invest.”
This comes as Avalon Investments predicted a significant increase in interest among IFAs to establish a working relationship with discretionary fund management groups to create bespoke model portfolios for their advisory businesses.
Wrap provider Transact said three of its IFA firms are already outsourcing the investment management and Standard Life also announced a similar scheme last month.
However, some IFAs are still reluctant to take the plunge. Blair Cann, senior partner of Cuffley-based M. Thurlow & Co, said he would not consider outsourcing fund management. He added: “There may be good reasons for outsourcing these aspects but personally I remain unconvinced. For me, this remains a person to person industry and outsourcing anything to some nebulous organisation tends to act against the personal touch.
“I believe a financial adviser should be familiar with the concept and principles of asset allocation and that it should be part of his or her ongoing commitment to the client to be aware of the leading funds in each asset class.”
Jason Witcombe, chartered financial planner for Evolve, said: “We don’t use discretionary services and one of the main reasons for this is cost. Our aim is to keep the cost of investing for clients to a minimum and we do this by using low cost index tracking funds.
“If clients are paying an adviser plus a discretionary manager plus underlying fund manager charges, fees can add up to the extent that in some cases, almost all of your equity risk premium is eaten up, in which case a client could have been better off with cash under the mattress.”
Source:http://www.ftadviser.com/FinancialAdviser/Advisers/News/article/20100610/aeaafb7c-6e48-11df-a0ed-00144f2af8e8/Popularity-of-fund-management-outsourcing-rises.jsp
