This week Heather Hopkins (@heatherahopkins), Head of Research at Platforum, discusses outsourced fund selection, income on platform and doughnuts for advisers.
Investments may be the fun bit – but nonetheless advisers are outsourcing investment selection more and more. We hosted a roundtable at our offices last week with a group of high-powered discretionary fund managers and chief investment officers and there was consensus around the table that there is a move to outsourcing.
Our latest survey suggests that outsourcing accounts for roughly one third of advised assets and that use of DFMs for bespoke portfolios is on the decline as advisers increase use of model portfolios. Just over a quarter of advisers tell us they are using third-party model portfolios and the vast majority of these assets are run on a discretionary basis.
We sometimes hear from financial advisers that they are concerned they will be cut out of the equation. If they are using a platform to hold the assets and a DFM to run the money – how do they justify their own fee when they deliver an itemised bill to the end customer?
The group of CIOs and DFMs that we spoke to last week weren’t concerned about this in the least. The adviser squarely owns the relationship with the client. But it may not be the DFM that the adviser needs to be nervous of – but lower cost discretionary solutions offered direct.
Many of the advisers we speak to feel that fund selection distracts from other aspects of the advice process. Others argue that with sufficient scale, they can and should do in-house fund selection. Smaller firms building bespoke solutions believe they would find it hard to justify their worth if they were not picking funds.
We also talked about retirement – as we often do at Platforum. But beyond dreaming of mai tais on the beach, we discussed the focus on income as opposed to capital appreciation. The DFMs around the table were dealing with some well-heeled clients – that is certain. But nonetheless, they did lament dips in income causing a stir. They only hear from clients when income levels fall below expected levels. “They never look at the capital appreciation – they only notice a drop in income”. The view around the table was that there is a need for education on total return investing.
And finally – some advice for fund groups and platforms. First fund groups – donuts can go a long way! There was a feeling that advisers are feeling a bit lonely and that fund groups that send sales reps out in the field will benefit as financial advisers are seeing a whole lot less of the fund groups these days.
And for platforms – please sort out drawing income on platform. Financial advisers want discretionary assets held on platform. But fund selection is limited and more importantly most platforms sweep income back into the portfolio and reinvest it. It is very hard to deliver income on an on-going basis on platform. This is a deal killer for retirees in discretionary portfolios.
Noted! Have a lovely weekend everyone.
Ps. Platforum 2015 – The Retail Investment Conference – is taking place on 1st October and you can save up to £200 by registering before the end of next week.