But seven months later, dissenting voices are arguing that these adviser-friendly tools were not having the anticipated impact.
A survey by Iveagh, the Guinness family fund management company, recently found that 68 per cent of advisers prefer to run their own risk-targeted portfolios, rather than outsource such tasks to a third-party provider.
Platform and product provider risk-profiling solutions were generally met with scepticism by the 700 financial advisers surveyed, with 42 per cent also confirming they have in-house risk-profiling processes in place. According to Richard Ford, Iveagh’s chief executive, these results emphasise the need to raise awareness of the benefits of risk-targeted model portfolios.
“Many advisers are doing very well and are excelling with their clients. However, they are now expected to integrate risk-targeted solutions, and there are very good outsourcing solutions out there to assist them,” he said.
So why is it that many advisers, according to the survey, are ignoring these pre-constructed products and adopting a more DIY approach? Paul Gibson, a chartered financial planner at Edinburgh-based Carbon Financial Partners, said advisers prefer to retain control over their investment propositions because of past trust issues and the cost concerns.
“Adding another party will inevitably add to costs, and there is always the concern that the third party’s view of risk differs from the advisers’,” Mr Gibson said. “I think there is a trust issue with some advisers, given their experience of providers over the years whose risk controls have not been robust enough. I would question whether it is worth paying extra for the ‘skill’ offered by the external third party, as often the numbers don’t add up.”
Most advisers would agree that the central aspect of their job is ensuring the client gets the best deal possible. Although providers argue that this is enhanced by outsourcing investment decisions, not everyone is convinced.
Stephen Jones, chartered financial planner at North Wales-based 75point3, said: “It is clearly in the interests of proposition providers to push advisers into using their propositions, but can they move the debate on now and focus on the end user? We all know how important it is to have a robust process, but this must be something that has the flexibility to adapt to individuals.
“The real danger is making the customers fit the proposition, and while Iveagh is alarmed, perhaps the FCA will be comforted by the fact that advisers are still battling on, researching what they want their clients to invest in and digging through the layers of managers and charges. As the guys with our heads on the chopping blocks, I think we owe it to ourselves to understand what we recommend.”
Solutions
The suitability of model portfolios to each client is an ongoing debate. Some advisers have been quick to point out that outsourcing solutions were not necessarily as flexible as providers suggest.
Gary Jefferies, director of Kent-based advisory firm H&D Wealth, is a keen advocate of outsourcing investment propositions, but also accepts that there are flaws that may not suit each and every client. “The new model portfolios do not tend to generate income, but are growth stocks, which does not appeal to all UK-based clients and are based more on the American style of investment,” he said.
Despite this observation, Mr Jefferies said advisers constructing in-house risk-profiling tools are taking on a tough job. Dominic Ventham, head of marketing at platform provider Ascentric, said only the most experienced advisers were likely to adopt this method.
“The decision to run models in-house or go externally depends on the firm’s investment proposition, the fit with the needs of their clients and the associated economics. I think it would be highly unusual for users on our platform to engage in the development of investment solutions and provide them to their clients if they did not have the experience to manage them,” he said.
In terms of who is able to provide an in-house system and overcome the potential complications of implementing risk-profiling tools that reflect clients’ needs, some argue that a lot depends on the size of the business. Jason Butler, partner of London-based Bloomsbury Financial Planning, said smaller firms were struggling with increasing demand.
“Small firms will have to outsource some aspects of delivery to third parties, purely on cost grounds, while medium and large advice businesses will usually prefer to in-source most of the advice delivery to maintain maximum margin and control,” he said. As the industry changes and demands intensify, Mr Butler anticipates smaller firms will fold into medium-sized firms because they will not be able “to sustain the intellectual rigour and technical depth necessary to maintain their core thinking”.
Regulatory change has certainly had an effect on advisers and raised questions on potential solutions to help maintain a high standard of service. While Iveagh’s survey suggests outsourcing solutions have yet to be embraced as the industry’s core proposition, it is good to see advisers continuing to consider their clients’ best interests, irrespective of the time they have at their disposal.
Outsourcing tools clearly have an important role to play. However, work needs to be done to improve relations between advisers and providers, which should in turn assist the industry in developing solutions that suit all parties.
Daniel Liberto is a features writer at Financial Adviser
Key numbers from the survey
68 per cent: said they would develop their own risk-targeted proposition
42 per cent: already had their own in-house risk-profiling process in place
12 per cent: believed these propositions are simply existing fund ranges that have been repackaged for the RDR.
39 per cent: needed help with risk-rated funds
24 per cent: would welcome an independent education service that explains and compares these propositions.
