In-house or out-sourced: the investment dilemma facing advisers

By Dave Chessell

Go to the profile of PortfolioMetrix
Apr 18, 2018
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We recently attended the Money Marketing Interactive event where our UK MD, Mike Roberts, was on the panel for the debate ‘The discretionary dilemma: Does your firm need new permissions?’

Unsurprisingly, there was a mix of views in the room. Some advisers are big fans of out-sourcing, some prefer to use risk rated model portfolios to provide investment funds to clients and some are wedded to managing the entire process from scratch in-house.

Whether the DIY approach is the most effective in terms of the return on investment and risk management clients see is a matter for another day. What may not be appreciated by advisers considering doing it all themselves is the cost to their business, both in terms of hard cash and time.

Disconnect between client and adviser expectations

A couple of years ago, Platforum released data which showed 11% of adviser firms planned to get discretionary permissions within five years (16% currently had them). Advisers also said that over 80% of their revenue was coming from investment business. This is interesting because Vanguard research (Vanguard, The Economics of Loyalty Adviser Impact, 2011) found that nine out of ten (88%) consumers say they need help from an adviser to achieve their goals and less than a third (30%) of adviser clients say they only pay for investment performance.

So there appears to be some disconnect between what advisers are charging for and what their clients think they are buying!

In-house expertise comes at a cost

While there’s nothing wrong with advisers having the ambition to run a discretionary investment business, it’s worth noting that to do it properly can involve eye-watering costs. Having the infrastructure and a suitably qualified and dedicated in-house team is expensive – £50,000 in regulatory capital for a start along with many hundreds of thousands of pounds per year in salaries, bonuses, compliance support, research, data services etc.

For any adviser to be a true investment expert takes time, focus and endless research, which can come at the expense of seeing clients and providing them with what they expect – broad and holistic financial advice, where investment is only part of the story.

For advisers who are put off with the costs and business risks involved in the DIY route, we’ve produced a white paper entitled Riding the Winds of Change: Centralised Investment Propositions and Why Your Business Needs One. It outlines the options available for advisers and how choosing the right route can help unlock the full potential of a business.

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PortfolioMetrix

PortfolioMetrix are a multi-award winning, innovative investment manager that provides independent financial advisers with an alternative way to access discretionary investment management for their clients. Our proposition comes at a competitive price and doesn’t compromise the adviser/client relationship. The London winner of the Citywire Wealth Manager Regional Stars award for two consecutive years, voted the WM Small Business of the year, in association with ARC 2018 and, in 2019, have received the accolade of PA Discretionary Manager of the Year. Our proposition offers the convenience of online model portfolios yet delivers customised portfolios, tailored to individual client requirements. Investment performance has demonstrated consistent and reliable risk and return separation of portfolios that doesn’t undermine the financial planning process. This is achieved through our academically-robust, risk-based investment approach. WealthExplorer™ is integral to the PortfolioMetrix customised service. A proprietary owned and designed software system, WealthExplorer™, is purpose built to equip advisers with a broad range of tools designed to deliver unique client insights that add value to the adviser/client relationship and ultimately delivers better client outcomes, when utilised by financial advisers.

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