Comparing apples with oranges

Comparing apples with oranges

Outsourcing investment management was devised to make life that little bit easier for IFAs across the country in the new post-RDR environment.

However, it is proving to be a real headache for many, due to a lack of comparable data on pricing, risk and performance, which is preventing advisers from carrying out top-down due diligence for different DFMs or multi-manager solutions, according to a joint report by CWC Research and The Lang Cat.

The study, entitled Never Mind the Quality, Feel the Width, stated: “We tried – really we did – to identify any way an adviser could start by looking at the whole outsourced CIP [centralised investment proposition] market and then focus down to a rational selection. We didn’t manage.”

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The report also found that the combination of an increased focus on risk and due diligence, along with RDR margin pressures, appeared to be driving the trend of greater use of outsourcing for asset allocation and fund manager selection.

Nearly half of respondents of the 45 industry professionals – including 38 IFAs – interviewed by CWC Research said it was “quite hard” or “very hard” to identify these charges.

The study warned that making cost-based comparisons between managers in the multi-manager, multi-asset and discretionary fund spaces was nigh on impossible.

Speaking at the launch of the report, Mark Polson, principal at the Lang Cat, pointed the finger at DFMs in particular for their “lamentable” lack of effort in making data more readily available.

This view has been echoed by Peter Chadborn, director and IFA at Colchester-based Plan Money, which largely outsources CIP to platforms instead of using DFMs because of this concern.

He said: “We are living in a world in which we, the advisers, have to prove that we understand what we are recommending in terms of the exact cost.

“It is difficult for DFM solutions in which the charges can be a bit opaque.”

Susan Hill, chartered financial planner at St Albans-based Susan Hill Financial Planning, who mainly uses platforms, multi-asset and her own investment solutions, has called for a standardised charging model to be implemented to enable advisers to compare cost more efficiently.

She added: “Time and time again a provider would say that all their charges are displayed on their website, but you often find that the true costs are staggered across the document instead of being in one place. These charges should all be displayed on page two.”

Disclosure of costs is one issue in particular for which DFMs and multi-manager solutions have come under considerable flak in the past.

The annual management charge is one commonly used by DFMs, which is a levy to pay for the cost of the manager’s investment management services such as research, analysis and portfolio management.

However, the charging structure was panned by the city watchdog in the findings of a thematic review on clarity of fund charges which was published last May.