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Costs make IFAs reluctant to use discretionary managers

The need for IFAs to outsource stockpicking is increasing butIFAs are still being put off using discretionary fund managers by cost and loss of control.

The claims were made at a GE round-table debate in London last week where IFAs and fund managers discussed GE Life research on discretionary fund management. The research suggests that wider investment choice is driving the need to outsource stockpicking.

Seventy-five per cent of advisers surveyed said they are spending more time researching investments than they did five years ago, meaning that they have less time for new clients. Ninety-two per cent agreed or strongly agreed that there is a bigger range of investment choice available.

Yet only 38 per cent of advisers use or have used discretionary managers although 52 per cent of these believe their usage will grow in future.

Hargreaves Lansdown head of financial practitioners Danny Cox said it has become impossible for IFAs to plan for their clients and pick stocks.

He said: “We have moved from being transactional-based IFAs to financial planners with many layers, including asset allocation. How can I do that and stockpick? That is a job for two people.”

Cazenove Capital management Nick Georgiadis said a range of factors, including cost and loss of investment control, are putting off many IFAs from using discretionary fund managers but he said it is often cost-effective to take the outsourced option. He said good discretionary managers will focus on forging a genuine partnership with IFAs so they keep an element of control.

Central Financial Planning director Ian Smith said: “I am not entirely convinced the costs justify the benefits. There are not a huge number of completely new ideas out there.”

Cox questioned whether the technology is available for IFAs to stockpick effectively themselves.

He said: “Some tools are good for lazy IFAs to put some numbers in and see what comes out. Some tools make it look like the input is good but what comes out of it is not.”

GE Life retirement product manager Ray Chinn says: “I believe 2007 will be the year discretionary fund management takes off.”


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