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What Advisers Are Saying- outsourcing investments


The dressing gown arms are far too long. The socks make strange river pageantry vessels of my feet. The hat makes a mockery of my peanut head. One size does not fit all. But I must not let my longitudinally-challenged limbs unduly bias my judgement of centralised investment propositions, which continue to play a vital role in most advisers’ businesses.

The recent consultation paper seems not to have discouraged most advisers and many are recognising the increasing need to focus on core-planning capabilities, access investment expertise and streamline business processes. But questions remain.

First, a matter of control. There is confusion as to why a smaller business would outsource investment functions to an amorphous firm that operates under their own agenda that may not be yours, with definitions and applications of risk that may also be at odds with those of your clients. This is a reasonable point given the importance of suitability.

There are also still some issues over transparency and the question of whether service levels justify fees is still being worked through by many.

Work is needed to reconcile some of these differences and due diligence is imperative. Whichever model – DFM/model portfolios/DIF etc, – is under consideration, the selection process, both qualitative and quantitative, must be rigorous, covering people, process and performance:

  • Selection Advisers recognise that if and when things go wrong, it is the adviser, not the DFM that takes the wrap. Most DFMs have common compliance processes but it is the individual manager that really counts. Ask how much discretion they have. The wider individual discretion, the more time you should spend in due diligence with them.
  • Transparency As well as access to the fund manager, access to information is imperative in managing your client relationships. You are only as good as the information you have from DFMs, so how do they make their decisions? Do you have access to investment committee minutes?
  • Plan b What happens when things go wrong and how long do you allow poor performance to persist? These are important questions. Advisers have expressed concerns over the cost of changing DFM provider due to exit charges. This underlines the importance of robust negotiation upfront regarding transactional charges.

One adviser I spoke to summed it up: “Make a dispassionate decision about what is right for your business, irrespective of what you like doing.” What is best for your client and how can you best deliver it profitably?

All quotes have been taken from interviews with QCF 4-qualified financial advisers from fee-charging businesses

Phil Wickenden is founder of So Here’s The Plan

July 12 bubbles


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