According to new firm Portfoliometrix, which was started up in South Africa in 2010, advisers believe that when they refer clients to a discretionary manager, this removes the investment risk, although they will retain the suitability risk as they assess which portfolio is right to the client,
However, managers are not prepared to do this and therefore operate under the ‘agent as client’ model, passing both suitability and investment risk back to the adviser - something which many IFAs are unprepared for - thus opening a suitability gap.
Portfoliometrix is rolling out to UK financial advisers this year with the aim of closing this suitability gap by not meeting advisers’ clients and empowering advisers to deliver the investment proposition.
Mike Roberts, chief investment officer at Portfoliometrix, told FTAdviser that the proposition is designed to be a tight integration with advice firms, differing from the traditional models by being a blend of bespoke discretionary fund management and model portfolios.
“Advisers partnering with Portfoliometrix give every client a personalised portfolio, irrelevant of how much money they have, but retain all of the scalability benefits of model portfolios.
“This new way of operating is only possible by leveraging technology. At the core of the proposition is Wealth Explorer, a purpose built software package that not only deals with the customisation of the portfolio for the client, but also includes a fully integrated advice process.”
This includes behavioural finance tools that go deeper into the client’s financial personality than just risk tolerance; cash flow modelling; cross platform performance reporting; and white-labelled, automated documentation.
Mr Roberts explained that by providing a fully integrated investment advice framework and giving advisers detailed upfront and ongoing training, they are able to ensure the end client does not suffer a suitability gap.
“All parties know their responsibilities and the risks they are carrying, which are fully documented.
“We operate a ‘hybrid’ service model taking on each investor as a client as long as they have gone through the process with one of our partner firms.
“We are comfortable operating within the COBS rules as they are currently written and use our software to highlight potential issues along the process.”
Andrew Reeves, director at The Investment Coach, told FTAdviser that they switched over to Portfoliometrix about 18 months ago after having used DIM models that required a complete handover and used exclusively passive investments.
“We made the change because of the hybrid proposition meaning there is not a complete handover, this gives tighter de-lineation between where the risks lie,” he explained. “They’re not trying to wash their hands, as they make our lives a lot easier with the risk profiling tools provided.”
Portfoliometrix charges 0.35 per cent for the service and in addition the client will pay fund, platform and adviser charges.
The last three vary on the individual firm and client, but Mr Roberts said that most advisers charging 0.50 per cent on a “keenly-priced” platform will offer a total ongoing charge of less than 2 per cent and in certain cases significantly less.
A Personal Finance Society good practice guide published in February tackled some of these issues as it sought to help advisers develop their approach to due diligence on DIMs, as should things go wrong for a client in this situation, the liability for compensation would most likely fall upon the adviser.
peter.walker@ft.com
