InvestmentsOct 29 2012

Keeping hold of your clients

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ByPhilip Bailey

The growing popularity of managed portfolio and discretionary fund management (DFM) services among IFAs has led to expanding numbers of of providers touting their model portfolios to the market.

When IFAs sign up to these outsourcing services they often don’t realise they are opening themselves up to two fundamental issues affecting control of their clients’ assets and their own value proposition.

First, in order for the discretionary manager to run the service they have to be able to access the assets. This means client assets can move out of an IFA’s control and onto a discretionary manager’s platform.

Further on down the line, should the manager not be performing as the IFA would like and so have to be changed, the IFA has first to conduct another beauty parade and then move all the assets away from the initial manager on to the new manager’s platform.

Not only can this cause capital gains tax issues where assets have to be sold but the change of manager has to be explained to all the IFA’s clients. This can give clients a negative impression of the IFA’s service.

The second issue is where the investment strategy and process forms a major part of the value of the IFA’s service to clients. By outsourcing to a third party the value of the IFA’s proposition can be severely reduced or indeed lost.

In addition it is not unknown for clients to be approached by outsourcing companies directly, in the first instance with ancillary services but potentially looking to bring the client under their own wing. This has been a first-hand experience of Assetfirst director Andrew Whiteley within his own IFA practice.

By keeping hold of its investment strategy and process IFAs can retain control of client assets and remain at the centre of the client relationship.

IFAs can do this while also freeing up time currently taken in researching the market through use of an ‘insourced’ model portfolio arrangement. What is more, as the IFA is in complete control they have the discretion to tweak the portfolio to include favoured funds or ETFs as they wish.

Philip Bailey is partner at Assetfirst