Your IndustryAug 19 2014

Advisers hit out over portfolio management claim

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

Comments from a discretionary manager which offers a range of model portfolios that most financial advisers should abandon the space to outsourced providers have prompted a strong reaction from advisers, who have said taking individual responsibility is “very important”.

Thesis Asset Management questioned why adviser firms would choose to manage their own model portfolios, suggesting that IFAs should leave the investment risks to asset managers.

Speaking to FTAdviser, Lawrence Cook, director of marketing and business development at Thesis, said that when conducting a review of what clients valued the firm discovered that ‘good investment returns’ were not in the top three requirements.

He said that clients value “achieving their objectives, peace of mind, reassurance, good advice during difficult times, simplifying financial matters. All of these things IFAs are best placed to deliver, not investment managers”.

Mr Cook said: “I have been told by a couple of firms that they are sticking with managing their own model portfolios because that is what clients think they are paying for.

“There are lots of risks here – the client’s view of the relationship then depends on investment markets which the adviser cannot control and invariably does not have highly qualified full-time investment professionals to run the portfolios.”

Mr Cook’s is a view that has been espoused by many in the wake of the RDR, but with which many advisers fiercely disagree, arguing they should take full responsibility for client’s investments.

Craig Davidson, managing director at Okehampton-based Davidsons IFA Ltd, told FTAdviser that the view that advisers should leave portfolio building to the fund managers is based on the outdated idea of an adviser simply selling products.

He said: “If an adviser is working that way, with no knowledge of asset allocation, then I would agree that the client would be better off with an outsourced solution. However, I don’t believe that is the way forward.”

He added that it “isn’t difficult” to build portfolios to suit each client as it is all about assessing risk and capacity for loss, “which all advisers should be doing anyway”, and then asset allocating. Mr Davidson said there are plenty of tools to help if that is needed.

The final step is to choose funds within each asset category. “That is more time consuming, but it’s just a matter of research and knowledge,” he said.

Mr Davidson said that his firm builds each portfolio using Morningstar for the risk assessment and fund research, with quarterly in-house investment meetings to discuss asset allocation for each risk profile.

“It’s not as difficult as some commentators would suggest, and in terms of building a customer relationship, it is hugely important: the client can see we are investing time and effort into their portfolio and we are then taking responsibility for that portfolio.

“After all, that’s what we charge the fee for.”

Craig Palfrey, a certified financial planner at Cardiff-based Penguin Wealth, said that they buy in data from another financial planning firm which has set up its own model portfolios and he prefers this route than outsourcing entirely to a larger firm.

“I’m not against what the likes of Thesis or Brewin Dolphin do, but they have so many assets under management it feels like they take their eye off what they deliver to you.

“The communications just aren’t at the right level, where we can explain things simply in quarterly client statements, they don’t communicate in plain English.”

Last June Thesis moved into model portfolios and will shortly be available through Standard Life on request from an adviser. The firm is also in the process of agreeing terms and conditions with Nucleus and is in discussion with Fusion.

The model portfolios are already available on Ascentric and Novia.

“If an financial adviser wants to do their own model portfolio there is nothing wrong with that – it just needs to be properly supported,” said Mr Cook.

“Advisers that have the sufficient scale can consider acquiring their own discretionary permissions and outsource some of the back office functions as appropriate.”