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Adviser investment models evolve - but fund picking not dead

Adviser investment models evolve - but fund picking not dead

Almost half of advisers continue to manage end-to-end investment including fund selection for their clients while more than six in 10 assert that they do not ‘outsource’ their investment function, research carried out by FTAdviser has revealed.

An exclusive poll for FTAdviser of 178 advisers on the Unbiased directory, found just 31 per cent have outsourced the fund selection process for clients, with 47 per cent stating that they have kept this in-house.

Direct polling by FTAdviser of 1,400 advisers which asked a different question relating to outsourcing of the broader investment function, found 62 per cent of advisers do not consider themselves to have done so, in line with figures from the same research in 2013.

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Just 14.7 per cent of those that do use third parties outsourced investments for all their clients, a slight increase on previous figures, while 23.3 per cent did ‘for some clients’, a modest fall.

Advisers in the Unbiased study gave a range of reasons for continuing to stock-pick, from it adding value to their service to simply backing their own judgement.

One of the problems identified with outsourcing investment wholly through for example discretionary managers, is the difficulty in comparing and contrasting the various options, which one report earlier this year suggested increased the perception of risk.

Speaking to a number of advisers, FTAdviser found a range of models among those still managing client investments, including greater client segmentation and some use of centralised propositions for smaller pot clients, and use of sophisticated research tools to aid research and reporting.

Of course, under FCA rules advisers will always remain responsible for the client outcomes where they manage the client relationship, even where a DFM takes direct control of investment decisions.

Graeme Mitchell, managing director at Lowland Financial, said he has historically picked stocks, albeit with increasingly sophisticated research from Financial Express analytics.

“We pay them a fee for the research but clients get the investments reviewed every six months - which seems to be popular. It allows me to focus in review meetings on the things that are important to the client.”

Clive Waller, managing director of CWC Research, said his own firm’s data over six years found that now only 10 per cent of advisers would ‘always’ pick funds for all clients.

He also said the common adviser response that it is cheaper for them to do it themselves was extraordinary “and demonstrates why they should not be allowed out with their own wallets”.

Mr Waller added that a fund research licence costs between £5,000 to £6,000, whereas to do the research on 2,000 UK funds and 20,000 from Europe, plus other vehicles would cost a minimum of £100,000 per annum.

Kevin Croker, principal at Crokers Financial Planning, said that the majority of his more mainstream clients’ investments are outsourced using a selection of three ‘fund of funds’, which have been researched and given due diligence via the research arm of his network, TenetConnect.

He said he still fund picks more extensively for a minority of clients who want specific ethical investments, for example, where there is not yet a fund of funds that meets his requirements.