A new joint study from CWC Research and The Lang Cat found that reliable, comparable data on pricing, risk and performance was so difficult to collate that adviser firms looking at discretionary fund management and multi-manager solutions were forced to choose based on “line of best fit”.
This was the specific suggestion of The Lang Cat’s principal Mark Polson, who lamented the lack of effort on the part of DFMs to make data available.
Clive Waller, managing director at CWC Research, argued that “you can’t be a financial planner and an investment expert”, but noted that the data showed two thirds of respondents believed that outsourcing increases business risk.
Data gathered by FTAdviser last April revealed that of more than 10,000 advisers, two-thirds did not consider themselves to ‘outsource’ at all.
Mr Polson said: “There are handsome rewards available to those [DFMs] who can help advisers articulate the story to their clients, because you might as well go with the story as it’s so hard to pick on objective measures.”
Mr Polson suggested that for those that did not want to share their latest figures, lagged data would suffice. He added that this would be “extraordinarily helpful” for advisers, so they could try to construct top-down, due diligence cases for different DFMs or multi-manager options.
It also criticised the sector for working hard to convince advisers and clients that volatility, risk management and “special sauce” intellectual capital are worth paying total expense ratio or ongoing charge figures of two per cent or more.
The research claimed that there was a need for financial planners to outsource investment decision making, as in a qualitative study of 45 firms - including 38 advisory firms - there was “no real sense of advisers using an overarching top-down portfolio selection”.
The research also found “no consistent evidence of drawing lines between certain product and certain client groups based on hard fact in a manner that is both documentable and repeatable”.
In the relatively small sample, CWC Research found a range of approaches and significant variation. “While some approaches appeared to be effective, others presented genuine cause for concern.”
The research also found that just over a third of adviser firms segmented clients by assets under influence, with just over half of respondents believing that clients see bespoke portfolios as a ‘premium’ product.
For many advisers DFMs are considered to be essential for high net worth clients in need of “something special”, but the CWC Research report found very little to support this stance in terms of performance or behaviour against risk profile.
“There is simple a shocking lack of client-centric thinking going on, with some providers seeming to view it all as a game to see how little information they can ladle out.”
peter.walker@ft.com
