With the RDR nearly upon us, more and more advisers are reviewing their services and will inevitably need to make a decision on how they run clients’ investment portfolios going forward. For many advisers, outsourcing clients’ investments will be the natural conclusion.
Once the decision whether or not to outsource has been made, however, advisers have a further question to answer - what is the best outsourcing solution for my client?
Essentially, there are three different ways of outsourcing, each with their own pros and cons. A report by Defaqto entitled ‘Discretionary Managed Portfolio Services: Case Study’ lists these as the following:
Outsourcing to multi-manager funds has been a popular option for the best part of a decade. Figures from the IMA show that between 2000 and 2010, fund of funds (FoF) assets grew from £11.7bn to roughly £59bn. According to Defaqto, such funds allow advisers to give their clients a ‘whole of market’ offering. By employing teams of investment specialists, often using state-of-the-art technology, funds are continually monitored and appropriately diversified. Because of their structure, such vehicles allow advisers to cater to smaller clients that may not be suitable for other discretionary offerings.
Managed portfolio service (MPS)
Many discretionary fund managers have begun to create managed portfolio services to cater for clients with less to invest. Because they are run on a model basis, advisers may find these beneficial, as they permit them to use an outsourced investment process for a much wider range of clients than bespoke discretionary fund management, while still employing the skills and expertise of a discretionary. However, according to Defaqto, because MPSs are a recent addition to the outsourcing market, it is much harder for advisers to analyse and compare them. Many services have limited performance histories and it’s not always clear how they can fit into an adviser’s selection process, which might be geared to selecting individual funds.
Defaqto’s online product and service comparison tool, Matrix, now shows some 40 MPSs from different discretionary firms.
Such a portfolio is tailored completely to the individual client’s needs and is likely to employ a range of asset types, from alternative investments through to individual equities. Because of its bespoke nature, the entrance requirement for such a portfolio service naturally comes at a higher price, and the entry level typically starts at £250,000. According to Defaqto, this figure has declined over the past few years. However, the firm argues that the level of personal service and the range of asset types employed are likely to vary depending on the minimum entry requirement, so those investing less might not get the same service.