About half of advice firms continue to provide investment management services in-house, according to Mark Polson, principal at consultancy firm the Lang Cat
Mr Polson spoke to 235 advice firms, and found that 55 per cent continue to act as investment advisers for at least some of their client assets, while just over 40 per cent outsource to a Discretionary Fund Manager (DFM) or similar.
However Mr Polson found market conditions and regulatory pressures are likely to lead to a drop in the number of advisers providing investment management services in the future.
He said: "For the decade since the financial crisis the way investment management has evolved has been reactive, but clients didn't mind as the market went up.
"2019 could be the year this changes, because advisers could be faced with a market downturn, where they have to explain to a client what has happened.
"Advisers want to say that their clients are long-term and don't react to market movements, but let's see."
Mr Polson said in the decade since the financial crisis, while there have usually been benign market conditions, the regulatory and administrative obligations faced by advisers who also provide investment management services has increased.
He said the combination of more time needed to deal with clients amid market volatility and the obligations placed on advisers under the Mifid rules means providing investment management services will become less economically viable.
Minesh Patel, an adviser at EA Solutions in Finchley, said he outsources 85 per cent of the investment management in his firm, with clients with complex needs, such as capital gains tax liabilities or an extra income requirement outside of a wrapper, placed into discretionary fund management services, while clients with simpler needs, such as capital growth are placed into multi-asset funds.
He said the investment management he undertakes internally tends to be for clients who want ethical funds, or those who want satellite funds to accompany the investments held in the discretionary portfolios.
Mr Patel said the Mifid rules have impacted on the ability of advice firms to provide investment management services to clients with a smaller pool of assets, as it becomes uneconomical.
He added that in times of market turbulence the client starts to look at everything else you do for them, so you have to make sure the back office processes, and the communication is right.
Philip Milton, who runs PJ Milton and Co, an advice firm in Devon, provides investment management services for his clients and also has discretionary permissions.
He said: "Regulatory pressures and the liabilities of undertaking investment management (both in assets choice and the practical aspects) are indeed becoming more onerous.”
"In 1987 I took a view that a client expects advice but then believes that we are looking after what we have advised them to do.
"In reality, that could not happen as there was no system to enable you to do so.