Regulation will lead to more financial advisers outsourcing a larger share of their client’s investments in 2017, according to new analysis.
Global analytics firm Cerulli Associates carried out a survey which showed outsourced assets have remained broadly stable in recent years, with IFAs saying 41.4 per cent were managed by another company in 2015, while this year it rose slightly to 41.7 per cent.
However, the research found this was likely to start rising again next year, reaching 45.9 per cent, according to Barbara Wall.
The managing director of Cerulli Associates Europe explained the forecast related to changes following the Retail Distribution Review, which saw merger and acquisition activity in the financial advice and wealth management market showed a marked increase.
“It is now slowing, revealing an industry divided between large, multiservice adviser and wealth management companies and small, traditional, independent advisers,” she stated.
“The smaller players are more likely to have to outsource investment allocation.”
One of the key attractions of outsourcing was the potential to share the cost of change caused by new regulations, according to Cerulli.
Almost two-thirds - 64.4 per cent - of the IFAs surveyed outsourced to discretionary fund managers, followed by multi-asset funds and multi-manager or funds of funds, each of which were used by 53.3 per cent of the advisers.
More than one-third of IFAs - 35.6 per cent - outsourced to platforms’ model portfolios, with only 2.2 per cent using robo-advisers.
Ms Wall added: “Our analysis of the average management fees for outsourced investment services found that they range from 86.8bps for multi-manager or funds of funds to 63.2bps for platforms’ model portfolios.”
Research from due diligence consultancy Diminimis in June showed a third of advisers are still doing investment in-house because of concerns about cost. The main barrier to outsourcing would appear to be the cost to clients, with 47 per cent of advisers citing this as a concern.
