Mr Patel prefers instead to use model portfolios built by big investment funds and claims his clients are often overjoyed to hear that one of the “best financial institutions in the world” is looking after their money.
“Clients have more confidence in you if you have the conversation that you are very good at certain aspects, the financial planning, but the investment aspects you want one of the best financial institutions in the world looking after,” he says.
“I want to deliver plus inflation returns regularly without my client having undue upset or worry and that, quite frankly, I’m achieving through model portfolios. So I’m thinking why do I want the hassle of building my own portfolios, which could be more volatile?
"Vanguard shoots the lights out of most things, that is, its Vanguard LifeStrategy portfolio. Not only has it been a solid performer. It has been an outstanding performer and kept the costs very, very low. That is a difficult combination to argue against.”
What’s stopping clients from going directly to the provider?
Mr Patel’s praise of outsourcing poses a serious question for advisers. If clients learn that their money is now being managed successfully by other professionals, they might, in theory, opt to cut out the middle man and go directly to the source.
Robin Beer, head of intermediaries at Brewin Dolphin, says his company, which offers model solutions and bespoke DFM, draw up contracts to reassure advisers that their clients will not jump ship.
These legal agreements often mean that Brewin Dolphin seldom knows who is the client on whose behalf they are investing.
But there is also a question of risk and responsibility. Who is responsible for the end client? The DFM to whom an adviser has outsourced, or the adviser who provided the advice?
Mr Beer calls this a delicate topic. "Who takes legal responsibility when an outsourced investment goes sour?" he asks.
In previous years, professional indemnity insurers have criticised outsourcing models as difficult to investigate when customers allege foul play. Brewin Dolphin’s head of intermediaries reckons the process of identifying whether the adviser or the provider is to blame is actually quite simple.
“The adviser will come to us on behalf of a client with a particular mandate, with risk parameters, etc,” says Mr Beer. “Our job, our regulatory obligation, is to manage a portfolio within the mandate and parameters set by that adviser.
“If we, for whatever reason, do not do that and there is a complaint, then absolutely we are on the hook for that investment advice. Obviously, the adviser is on the hook for the financial advice, the suitability of the service, the risk category and everything else.”
