Financial advisers need to do more to support the assumptions they make when directing clients of different wealth levels into different investment options under post-RDR segmented models, according to Mark Polson, principal at consultancy the Lang Cat.
Speaking at the FE Investment Summit this morning (30 September), Mr Polson said that advisers need to ask themselves why they might put high net worth individuals into discretionary fund manager solutions, while less affluent clients go towards multi-manager or fund of funds.
Using insights from the independent platform consultancy’s latest market report, Mr Polson said that providers need to do more to make information on investment options easier to access and understand.
He said: “There is a massive thirst to know more, but beyond the superficial information out there you quickly drop into a painful amount of detail; there really needs to be a middle ground.”
While Mr Polson did have encouraging words for the effectiveness of risk profiling, noting that his research found not too much “drift”, he added that there was an “enormous” amount of “herding” into similar investments.
In terms of statistics from the Lang Cat study, two-thirds of advisers never make asset allocation decisions, while half of advisers never make fund decisions, with overall findings suggesting there was a very mixed level of understanding on what goes into funds and the breakdown of charges.
Clive Waller, managing director at CWC Research and co-author of the report, explained to FTAdviser that the adviser sample was 40, so very much a qualitative sample to analyse behaviour and criteria. “We used our usual sample model, but deliberately filtered to be overweight on those who used direct fund management or multi-manager,” he added.
Mr Polson was also critical of multi-manager use on platforms, arguing that this just created layering of unnecessary costs.
“Just because the client doesn’t ask about charges, it doesn’t mean that we shouldn’t care about costs. We don’t think adviser firms can find the true cost of portfolios; 15 per cent of funds have no OCF or TCR disclosed,” he added.
Keith Richards, chief executive of the Personal Finance Society, opened the conference and agreed that providers must do more to clearly articulate their service and fund propositions to advisers.
However, he noted that in terms of IFA due diligence “it’s time to be brutally honest about internal resource capacity and expertise.”
