Managing your investment proposition in today’s challenging world

19 February 2020
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Okay, so you have decided on your investment principles.

You know your policy on use of alternative assets, ETFs and to what degree you balance active and passive positions.

You have decided how you capture and describe the nature of the investment risks your clients will experience and how your advisers apply that in practice.

That’s some of the chunky theoretical bits of work done.

How is that best delivered to my clients?

How can I efficiently administer it so I can give a great service, maintain my staff costs and protect profitability?

The operational effectiveness of delivering the investment engine to a client seems to be a hot topic with many advisers. Often they are not too displeased with investment performance in recent years but other concerns now weigh heavily;

  • Impact of MIFID II and PROD
  • Ongoing suitability requirements
  • Capacity in the business to take on new clients
  • Avoiding another ‘Woodford’
  • The regular administrative grind of managing portfolios
  • Paraplanners getting clogged up with administration
  • Recruitment and retention of staff

Pinch points


How the investment solution is delivered can have a significant bearing on all of the above. Not surprisingly we are experiencing a significant shift in the focus of advisers and conversations we now have. Owners of these businesses recognise that if capacity is constrained or reduced and prices cannot be increased then they must search for ways of making business processes and systems much more efficient.

In discussion with a director of a South East based firm recently he told me that the fee earning advisers have ended up doing the report writing, the paraplanners are having to help out the administrators just to stand still.
Consequently the advisers have limited capacity to take on new clients, the paraplanners are dissatisfied with their jobs with a concern they might leave. The thought of having to replace paraplanners is the last thing he needs. This firm has a proud history of developing their own investment offering and developed into a range of risk based models on two wrap platforms.

As a consequence of their own success they now have £300m+ sat in their advisory models. The rebalance and changes to the models are time consuming and it is ‘as if the business wades through quicksand every quarter’.

Weighing up the options

There are of course a variety of ways of delivering an investment proposition. In its simplest form a single fund for a client is efficient – at least until it becomes not the most suitable. However it can be a solution that works well for a low touch, lower cost service.

Beyond the traditional forms of advisers running their own advisory portfolios and traditional bespoke DFM we have witnessed a massive growth in the availability of Discretionary Model Portfolios (MPS) through wrap platforms and directly from the DFM.

The MPS market has grown arms and legs over the years and is now so diverse that just using the term MPS does not really describe what it is on offer.

When MPS came to market it was a simple segregated portfolio, usually consisting of open ended funds only. These tended to be a replication of the DFMs centralised investment process and its asset allocation used in the bespoke DFM space. These still do a good efficient job by removing much of the rebalancing and general administration around portfolio management.

However what we have seen is that increasingly MPS is regarded a commodity and put on a panel like a retail investment product (RIP). MPS is not a RIP, it is a service. Nevertheless MPS has largely become regarded as an off-the-shelf product where it is the standard DFM offering.

Demand from advisers has increased for a greater reflection of their own identity in the investment solution.

Embracing technology and retaining brand identity

The market response from a small number of providers has been very innovative.

In the tailored market we have Standard Life’s new Individual Managed Accounts (IMA) which seeks to deliver mass personalisation through its wrap architecture. IMA allows for specific criteria for investment preference and tax treatment, allowing for clients to be slotted into effectively mini models within an overall proposition umbrella utilising one of a specialist range of DFMs. It will be interesting to see how the market reacts. One suspects some of the larger traditional DFMs will be scratching their heads thinking is this a threat or an opportunity?

At Sanlam we have adopted an approach to work with the adviser as the architect where we build a proposition that’s unique to them and branded accordingly. This is delivered through our Specialist Investment Services team who dedicate themselves solely to delivering this for advisers on the wrap of their choice.

As we can see from the figure below, the latter offerings provide increased efficiency without sacrificing the proposition quality and sophistication usually associated with bespoke and advisory.

The result is a rich offering that can be delivered without the business grinding to a halt.

13 February 2020
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