With increased regulation and a continued focus on transparency, client outcomes and costs, it is little wonder that advisers are increasingly using third parties to help with the investment burden.
Meanwhile, macroeconomic and political factors continue to place pressure on advisers to provide their clients with the best possible solutions. With the recent pension freedoms seeing many people looking for new ways to invest their retirement pot, the opportunities in the outsourcing space are only likely to increase.
James Horniman, portfolio manager and head of adviser solutions at James Hambro & Partners, explains that with longevity increasing “people need high-quality advice to ensure they are not drawing on their pension savings too quickly”.
“An average life expectancy beyond 65 of 20 years means most people will require their savings to generate above-inflation growth overall, and so advisers are looking to their investment manager partners to not just preserve wealth but grow it,” he says.
“If, as is not uncommon, the client is looking to keep a reasonably large buffer in cash, then the investment element of the portfolio needs to work a bit harder. It is not untypical for those in drawdown to require their investment portfolios to generate around four per cent a year above inflation – something akin to the return on an equity income portfolio.”
But investor confidence remains a key issue in the outsourcing space, with the uncertainty of the result of the EU referendum next month creating volatility in most asset classes, including equities and currencies.
Guy Stephens, managing director of Rowan Dartington Signature, notes: “The attractions of equities relative to other asset classes are significant and clients expect us to phase new money into the markets either side of [the EU vote]. The longer-term investment story does not materially change regardless of [the outcome].”
But he adds: “Clients need to hear a joined-up strategy for their entire portfolio rather than from individual fund managers that will contradict and confuse. Transactions can then be explained with reference to this broader top-down strategy rather than a series of individual recommendations gathered together somewhat randomly.”
Aside from the investment return profile, however, picking the right outsourcing partner requires increasing due diligence and a decision on what type of outsourced proposition, whether bespoke or one of a range of portfolios, works best for the client.
Ronnie Binnie, head of business development at Standard Life Wealth, says: “Proposition development is particularly interesting with little or no real innovation in the discretionary investment management propositions for years, but now we are seeing a myriad of new ‘proposition launches’ week in, week out.
“We are seeing new managed portfolio services – both on and off platform and multi-manager fund propositions – being taken to market to satisfy the needs of financial advisers and their clients. Changes in distribution models, regulatory pressures, different client behaviours and underlying operating models are contributing factors to this.”
Nyree Stewart is features editor at Investment Adviser