In segmenting their client bases to establish viable levels of service, advisers are finding the multi-manager offering a compelling choice as an outsourced investment solution.
The selection process poses thorny considerations once the decision to outsource is made, so it is worth looking at each of these questions.
First, however, we need to take a step back to put the health and prosperity of adviser businesses post-RDR in context and to understand the drivers for multi-manager appeal.
Research conducted among more than 250 UK investment advisers to measure sentiment shows interesting dispersions. The absolute level of the index at 5.1 (on a scale of 1 to 10) reflects the mixed adviser landscape.
Despite a shaky start to 2013, flows are reviving as is client-facing advisory activity. With advisers in Q1 reporting a focus on improving the efficiency of their business, segmenting clients, documenting business plans and completing qualifications, it is not surprising that client activity was more subdued.
However, in Q2 advisers reported that their take-up of new clients had increased and their outlook was considerably rosier, with half expecting to see a profit rise over the next year. While this is a positive sign, advisers keeping up with RDR will have to balance managing client investment selection with maximising business profitability. In fact, the rising use of multi-manager funds is a key enabler of client segmentation and increased business efficiency.
Those reporting the most success displayed a number of common characteristics, including:
- Being proactive business managers implementing formalised business planning activities, exploring client segmentation and generally looking after profitability of operations.
- Analysing the lifetime value of individual clients.
- Heavily using paraplanners.
- Streamlining their advice proposition by embracing centralised investment propositions.
- Undertaking or working towards further qualification.
Considering these factors, successful advisers face a challenging balancing act: monitoring client investment selection while maintaining and boosting the value of their businesses.
One appeal of outsourcing investment selection is freeing the individual adviser from having to sift through the 3000-odd funds available in the UK market alone, allowing them to focus on broad financial planning and business management.
Growth of outsourced investment solutions in the marketplace attests to its rapid adoption. Assets under management in multi-manager funds have seen a compound annual growth rate of more than 24 per cent in the last 10 years, according to Lipper Fundfile. Flows into these offerings were up 71 per cent in the Q2 over the same time period last year.
As part of choosing suitable products to cater for their outsourcing needs, advisers need to pay close attention to the providers they team up with and the outcomes they can produce. With the increasing focus on due diligence of platforms and providers, advisers will need to take a number of critical factors into account, including the stability and strength of the provider; management and staff continuity, expertise and depth of resource; the investment process and whether it works; and investment outcomes in terms of risk and reward.