Life is rarely black or white and so with white labelling of model portfolios on platforms a few shades of grey have crept in!
Financial advisers are asking:
- What exactly are the benefits to me and my clients?
- What is the best route to deliver these models on platforms?
- Are there any areas that should concern me?
There are 3 options for delivering white labelling:
1. Use of Intellectual Property (IP)
A Discretionary Fund Manager (DFM) delivers IP at fund level to populate an asset class or model level e.g. asset class and fund selection. The resultant models are aligned to the risk assessment process used by the financial adviser who then builds these on the selected platform(s).
The models are then managed either on an advisory or discretionary basis and updated based on the IP delivered by the DFM.
In this arrangement there are clear roles and responsibilities. The adviser owns and manages the models and takes responsibility and liability for client outcomes.
This perhaps isn’t true white labelling but it’s definitely a variation.
2. Full white label
In this situation, the DFM builds and manages portfolios based on some or all of the following:
- Client bank segmentation
- Investment philosophy – active/passive/hybrid/ESG
- Client outcomes – income/growth
Portfolios are built and managed on the platform by the DFM but branded for the IFA business. Any documentation indicates that the DFM is taking the investment decisions and using their permissions to manage the money so there are clear roles and responsibilities of each party.
3. Hybrid model
The DFM builds and manages portfolios on the platform as mentioned in option 2. The portfolios are white labelled but the financial adviser sits on the investment committee and can influence the management and selection of investments.
The challenges are:
- To what extent should an adviser exert influence and if they do, is this a problem?
- Is this hybrid situation acceptable until something goes wrong?
- Where does liability lie?
- How are any disagreements managed?
- What does the client think is happening?
This half-way house could cause some confusion and whilst an adviser needs to understand why investments decisions are taken in order to support client communication, the question here is around level of oversight versus influence.
Perhaps this scenario can work but has to be subject to well documented processes, good controls, governance and oversight? Removal of the shades of grey, perhaps?
Intermediary Solutions Director, Schroders
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