In response to the report from the Lang Cat and CWC Research (FA, Jan 29) about the difficulty of comparing DFM services, in the words of the abbreviated report’s conclusion: “We tried – really we did – to identify any way an adviser could start by looking at the whole outsourced CIP market and then focus down to a rational selection. We didn’t manage.”
The conclusion is not surprising if you consider that research into CIPs was bound to pick up the characteristics of the entire ‘standardisation’ model of the industry: volatility-differentiated, asset allocation-driven, diversified portfolios, whose returns are largely attributable to the underlying policy mix with the unexplained alpha being smaller and largely random.
Not only is the solution indistinguishable from firm to firm (or DFM to MM or MA) but the key part of the process, the matching of the idiosyncratic client need to one of these standardised solutions, has itself been standardised using – as the report demonstrates – a small number of off-the-shelf toolkits.
The real story is that we have weakened the value proposition of the industry (both planning and managing) by dumbing it down for reasons of operating economies – or worse – so that dumb people can do it. It is hardly surprising if clients are starting to notice.
This will look familiar to any readers familiar with the DB pension management industry pre-LDI. That was also a case of the emperor’s new clothes. The answer for private wealth is the same as in the pensions market. Idiosyncratic client needs (liabilities) and utilities (not typically a function of volatility, and probably more about long-term real outcomes and consequences) require customised solutions not necessarily optimised on volatility. That requires no dumbing down, a lot of maths and IT delivery methods.
I disagree with Clive Waller when he said: “You can’t be a financial planner and an investment expert.” Take away the dumbing down and you cannot be a planner without investment expertise and you cannot manage money without understanding how to plan. Right research. Wrong conclusion.
Director, Fowler Drew, London