Adviser interest in Charles Stanley’s discretionary fund management model has been “slow” because its “different concept” is not what advisers are used to, the firm’s wealth management director admitted to FTAdviser.
Gerard Sweeting, director of wealth management at Charles Stanley, runs the models, which were launched in 2011 and directly invest in UK equities and bonds, with collectives providing international, commercial property and ‘alternatives’ exposure.
Mr Sweeting said the DFM service was launched to offer advisers “something a bit different”, which also played to the firm’s strength in stock, bond and fund picking.
“We thought it would be interesting, especially for those advisers that do have clients with an interest in the stockmarket and individual assets, so they can see exactly what they have in their portfolio, that gives more of a transparent look to their investments.
“I think to be fair, interest has been slow because people like to see a track record, so it’s really only been in the last year that we’ve seen the IFAs that like it, take it up in a reasonable way.
“It’s gaining a little bit of momentum now, but it’s really only been in the last year that we’ve got a bit of traction with it.”
In spite of widespread predictions that advisers would seek to outsource client investment management, especially through dedicated discretionary fund managers, in the wake of the RDR, figures have consistently shown the model is being utilised selectively rather than widely.
Research compiled by FTAdviser between January and April 2014 found that 16 per cent of 10,558 advisers said they did ‘outsource’ investments, up slightly from 15 per cent of more than 14,000 advisers between January and June 2013.
The number of advisers who use outsourcing for “some” clients has increased from 15 per cent for the six months to June 2013 to 17 per cent since the turn of 2014.
Mr Sweeting said his firms DFM model is not right for all IFAs, explaining that interest follows a particular client type and especially attracts “IFAs with maybe a few more professional clients, those that concentrate on lawyers, barristers, accountants, surveyors, etc”.
He added: “Also, because the clients are professionals, they actually like the idea of conviction investment, things aren’t there because they’re a percentage of the FTSE, it’s because we like it or we don’t.
“Of course it [usually] matters if a stock underperform for a short time, but for us it doesn’t; the reason why we’re there can still be valid. Sentiment comes and goes, but as long as we think there’s reasonable upside, we’re happy to hold it.”
Mr Sweeting explained the asset allocation of the portfolios is benchmark constrained within pre-determined bands of tolerance, which is designed to help remove part of the risk in managing the portfolios.
Due to the direct equity and bond content, rebalancing takes place either when tolerances are breached or during times of asset sales, so purchases bring the portfolios in line with benchmark weightings.
The three portfolios, Growth, Income and Balanced, are measured against the relevant WMA Indices, with outperfomance of their benchmarks this year of 23.2 per cent, 23.1 per cent and 21.5 per cent respectively.
Mr Sweeting went on: “It is a different concept to what the IFAs are used to, it definitely has drawbacks, because it’s conviction and concentrated, so if I manage to get the wrong stocks in the wrong sectors, the wrong funds in the wrong areas, the performance is not going to be good.
“You cannot - unless you’re doing a lot of transactions all the time, which is not how I manage it - always be in the right place at the right time.”
Mr Sweeting added that the challenge in getting advisers on board was in getting the message across about exactly what is on offer.
“Because it’s a conviction portfolio, there’s no more than 30 stocks in any of them, it’s just getting it across that this is a valid way of investing.
“Plus in total expense ratio terms it’s a little cheaper than a fund of funds, although you need to weight that up with the fact you don’t have the diversification.”
