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Muddied waters on advice line

ADVICE

I have just been reading an article in Money Marketing, April 1, in which Towry Law state they are confident of meeting independence rules. Are Towry Law an advisory firm or a product provider?

They sell or advise clients to use a unit trust which they manage. To me, that sounds like they are a product provider, what is the difference between their unit trust and, say, a Jupiter fund of funds’ offering?

It is this sort of thing that muddies the waters and leads to companies such as Keydata being classed as an advisory firm, not a provider, and advisers then get stung when they go belly up.

Mr Fisher of Towry Law believes they have the most comprehensive whole of market offering with their funds. As far as I can see, it is still a product and advice by the firm leads clients to their product.

By calling themselves discretionary managers seems to exempt themselves from being product providers. What is to stop product providers doing the same? Before we know it, we would have loads of “fund managers” flogging their products to the public wrapped up as independent advice.

Nigel Tinsdale
Managing director Tinsdale Investment Management

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. As a client of TL, I have to disagree with the above article. TL offers a discretionary Investment management service which is significantly more onorus to deliver than the simple sale of a packaged product. Their key obligation is to manage my portfolio against my risk return requirements on an ongoing basis. I do not own on a contractual basis any of the underlying funds, this is somewhat critical to me as I am a partner in a large accounting practice. As the partner responsible for compliance consulting it is rather important that I get this right!
    As a consequence of their client proposition, TL are required to hold a discretionary investment license and twice as much capital as the run of the mill IFA.They do not take any commission trail or otherwise from my portfolio, however, they do deduct a management fee, which given the level of service and performance I see as excellent value for money. All costs and fees with respect to the entire service are fully disclosed and made very clear.
    I have been bemused by the industry’s reaction to their progress, as given the extraordinary impact of the RDR, as currently proposed by the FSA, the winners from the seismic change will be those such as TL who offer truly independant professional advice like many in the IFA community rather than the stockbroking firms and private banks who have only just worked out the need for them to fundamentaly change their business models. Fortunately for us there is likely to be a massive increase in the demand for consulting advice from these institutions in the run up to 2012

  2. Well, the Anonymous client of TL seems to have completely missed the point! Just because the product is more onerous to deliver does not exempt it from being a product and just because the annual management charge is called a fee does not mean it does not do exactly the same thing, after all it is worked out on a percentage basis like all fund annual management fees. With any OIEC or unit trust you do not own on a contractual basis any of the underlying funds, so why is this a reason in particular to use the TL fund? As for risk control, most funds are run within a risk criteria, so why does that make the TL funds so special? TL have marketed and sold there product to you very well, but that is all it is, a product.

  3. Yes i bet they dont tell you about the massive amounts of money they make “recommending” this distributer influence fund. This is next scandle waitining to happen, the FSA have already said they are watching these funds closely as distributers try and make up for lost money on commission bias but it is underhanded and wrong without better up front disclosure

  4. I must congratulate the TL salesman on pulling the wool so completely over the eyes of such a senior member of the accountancy profession. May I suggest that said accountant spend 5 minutes researching the Total Expense Ratio of these excellent funds, together with past performance figures and narrow band asset allocation. Now do a straight comparison – or get someone capable to do it for you.

    No contest.

  5. I am beginning to see why the IFA industry may well sadly go the way of the dinosaurs. I did research the market, the Towry discretionary service does not have a TER as this ia a term that only applies to a fund and this is not a fund I do, however, have complete information on the total costs and fees incurred by the service including all frictional and admin/custody charges and this adds up in my portfolio to be less than 180 bp, as I said excellent value for money,
    The difference between a product and a discretionary investment service is well defined and absolutely clear to anyone with a fairly basic knowledge of the English language.The FSA are very clear on this . I am hugely tempted to offer the services of my firm to those who clearly are well meaning but without a clue when it comes to regulation. Sadly to divulge my name would I am sure result in the usual barbed vitriol that sometimes plagues this site.
    Good luck to all on the RDR!

  6. I suspect this accountant is actually a TL employee or a Baker Tilly partner whom has completely missed the point of what IFA is all about.

  7. ‘The difference between a product and a discretionary investment service is well defined and absolutely clear to anyone with a fairly basic knowledge of the English language’
    Well I like to think I have a fairly basic knowledge of the English Language so let’s have a go at sorting this out. With a discretionary investment management service you will give your manager the authority to buy and sell investments for you without obtaining your prior approval on each and every occasion. So far so good, but this also applies to any unit trust or OEIC. For example Neil Woodford manager of the Invesco Perpetual Income fund does not phone you up to seek your permission to sell some BP shares. Therefore there has got to be something extra to set discretionary investment management apart from say a unit trust. I would put forward that true discretionary management means that each and every client has their own bespoke portfolio that is managed for them, with their own specific needs and goals in mind. Having worked for a stockbroker in the past that discretionary managed clients assets I know the difference. At the stockbrokers no two client portfolios were the same, they were managed specifically for the client. The TL discretionary management system is completely different. Firms go down the route TL have taken because there is far more profit involved. True discretionary management is hard to make profitable hence the short cuts firms now take. Personally I do not think they should be allowed to call it a discretionary management service, because it looks far too like any other fund of fund offerings out there which are marketed as unit trusts or OEIC’s.

  8. Fred Arthur Simpson 30th April 2010 at 10:26 am

    Actually a discretionary service is defined rather clearly within Article 37 Regulated Activities Order 2001 . The key criterea being that investments are managed in line with a client’s tolerance to loss and underlying investment objectives. It also has to be subject to ongoing review and adjustment as the client’s circumstances change. There are no FSA rules which prevent or prohibit a discretionary manager from investing in packaged products on behalf of a client. the MiFID definition of portfolio management states that the client’s portfolio will include one or more financial instruments. It is probably best for discretionary investment management to be left to the professionals who are duly licensed to do so and have the appropriate capital requirement.What would be very worrying from a regulatory perspective would be a company holding itself out to be an investment manager for example in the name of the company when it did not possess the appropriate license, capital or competence.

  9. Nigel Tinsdale 4th May 2010 at 11:36 am

    Mr Simpson, what are you wittering on about? The argument was not what type of investments a discretionary manager can invest in but that many discretionary managers are really only providing a one size fits all unit trust solution, which is basically a fund like any other marketed unit trust or OEIC. I agree discretionary managers should be left to discretionary fund management, but I think they should do it properly as I can see no difference between many discretionary managers and unit trust providers.

  10. the difference is in the mandate and the fact that it is managed against a risk return profile. It is quite simple really a unit trust is managed against a defined investment mandate dictated by the manager a discretionary portfolio is managed against the mandate dictated by the client. Therefore one particular unit trust or several investments could meet the clients objectives but the investments have to be constantly monitored against these objectives and altered if the objectives change or the underlying investments cease to meet those objectives.

  11. Nigel Tinsdale 17th May 2010 at 6:48 pm

    FAS, that is such a weak statement against my argument. The argument is that at the one size fits all discretionary managed funds are exactly the same as unit trusts and are at the end of the day just a product that is flogged by the adviser. If as you say a discretionary portfolio is managed against the mandate dictated by the client, which I totally agree with, how come all Towry Law cautious clients just happen to have exactly the same mandate? Again what is the difference between recommending the TL fund or say a cautious managed unit trust?

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