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Platforum: Outsourcing trends and the focus on income

Heather Hopkins

While investments may be the fun bit for some, it seems mote and more advisers are outsourcing fund selection. We hosted a roundtable at our offices last week, attended by a group of high-powered discretionary fund managers and chief investment officers, and there was a definite consensus that the move to outsourcing has gathered pace.

Our latest survey suggests that outsourcing accounts for roughly one third of advised assets but that the use of DFMs for bespoke portfolios is on the decline, as advisers increase their use of model portfolios. Just over a quarter of advisers tell us they are using third-party model portfolios, with the vast majority of these assets run on a discretionary basis.

There is a common fear among advisers that in deciding to outsource they will be cut out of the equation. After all, 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 delivering an itemised bill to the end customer?

The group of CIOs and DFMs we spoke to played down this concern. For them, the adviser squarely owns the relationship with the client.

Perhaps a more pressing threat is the 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 operate 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.

Focus on income

We also talked about retirement at the roundtable event, looking at the focus on income as opposed to capital appreciation. The DFMs around the table deal with some well-heeled clients – that is certain – but, nonetheless, they did lament dips in income causing a stir. Indeed, they only hear from clients when income falls below expected levels.

“They never look at the capital appreciation; they only notice a drop in income,” one told us. The view around the table was that there is a need for education on total return investing.

Adviser needs

Meanwhile, some advice for fund groups and platforms. First to fund groups: donuts can go a long way! There is a feeling that advisers are feeling a bit lonely and that fund groups that send sales reps out in the field will benefit. It seems the adviser community is seeing a whole lot less of them these days.

And for platforms: please sort out drawing income. 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 ongoing basis on- platform and this is a deal killer for retirees in discretionary portfolios.

If you would like to get more detail on trends in fund distribution, respond to our latest survey to get a summary of results. You can do so here:

Meanwhile, sign up to attend our annual conference, which is taking place on 1 October. Details can be found at

Heather Hopkins is research director at Platforum



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