Advisers fear poaching by vertically integrated firms

Advisers fear poaching by vertically integrated firms

Advisers who outsource their investment proposition are reluctant to choose an investment manager that is part of an advice firm for fear of poaching, according to research.

Research from fund house Liontrust found that while 91 per cent of advisers were happy to select a model portfolio service (MPS) or discretionary fund management (DFM) service if the provider also has an asset management operation, some 53 per cent were uneasy about their investment management provider also having an advice business.

A quarter of advisers were concerned that a third-party investment manager would seek to poach their clients in such a set up. 

The number of vertically integrated firms operating in the market has grown in recent years, which firms such as Quilter and Smith and Williamson, both running advice businesses and investment management services.

Quilter and Standard Life Aberdeen also own adviser platforms, and so control every part of the value chain.

But this is not without controversy. In its report into the asset management market, published in June 2017, the Financial Conduct Authority (FCA) expressed concerns about the conflict of interest in these firms, between the different functions, and particularly cited value for money concerns.

Financial advisers have been some of the fiercest critics of this emerging trend for one-stop-shop giants, arguing it goes against the spirit, if not the actual wording, of the Retail Distribution Review.

A major reason for the introduction of the RDR was to sever the stranglehold of influence life companies and fund management houses had over the provision of financial advice.

One respondent to the FCA’s consultation argued that vertical integration has increased since the RDR and that in their opinion this could be interpreted as providers seeking alternative routes to regain their influence on the retail market.

Liontrust had spoken with 100 UK advisers in Q2 this year.

It also found advisers segmented clients by portfolio size, with smaller accounts of £50,000 or less more likely to be managed by a multi-asset fund manager while mid-size accounts in the £100,000-£250,000 range were more likely to be managed by a model portfolio service.

Accounts above that amount that are outsourced were most likely to be run by a discretionary fund management firm. 

The majority of the advisers (73 per cent) listed the level of the management fee as the number one consideration when choosing an outsourced investment manager, followed by the quality of the administration.  

John Husselbee, head of multi-asset investing at Liontrust, said: "What is clear from this research is that transparency, value for money and suitability are of prime importance to advisers in ensuring a successful outsourced investment partnership.

"The onus is on investment managers to demonstrate how we can deliver added value to advisers and their clients and how we can help advisers with their challenges such as suitability.”

Minesh Patel, adviser at EA solutions in London, told FTAdviser he uses both model portfolios and discretionary fund management services but tends to segment the clients by complexity, such as if a client has a specific yield target or tax planning need.