In my last illuminate article, I asked whether it was time for firms to create their own discretionary investment proposition. This time I’ll share what we’ve done.

    But let’s rewind for a moment.

    I suggested than given that PROD asks firms to understand their client segmentation as well as the associated investment solutions, surely it provides an opportunity to review their central investment proposition in accordance with the expectations of the regulator?

    It could be considered evident that with this regulation, and in light of the FCA’s attitude towards it, it’s not the tick box exercise some may have once considered it to be, but instead an opportunity to hit the reset button.

    I hark back to the potentially fairly large advisory mandates referenced previously. One argument might be that this is centric to your firm’s culture. Well I would agree with you, but should we not challenge the status quo a little? Any firm that has been in financial advice for a significant period has asked themselves ‘the DFM question’ – is it possible?  

    The short answer would be yes, but potentially not without great cost and heightened regulation. So is this idea really feasible or are we best leaving it to the professionals?

    We all know that there is plenty of choice out there in terms of choosing an investment manager encompassing everything from small boutique investment houses to large ‘too big to fail’ multinationals; as well as a kaleidoscope of lenses through which to view them. Are we expected to understand and research them all?

    Now is the time

    In my opinion, now is a great opportunity for firms to begin looking to the market. We don’t need to settle for the ‘agent as client’ middle-man type of proposition that has been dictated to us by fund managers in the past. Investment managers, both new and old, are willing to have a conversation and your ‘unsustainable’ advisory mandate could be the key.

    Over the past two years I maintain that there has been a slow shift in the attitude of investment mangers who are now far more willing to have a conversation about running potentially completely bespoke investment mandates on behalf of firms.

    For us this was exactly the solution we had been looking for. Having been subject to running a large advisory mandate for a significant period of time and one that sat centrally to the culture and operations of the firm, we had to find a long-term solution that was able to retain that core.

    This idea of running a discretionary mandate is not a new one, and it was not for us either. But in consideration of the regulation discussed earlier we must be able to present a plethora of investment solutions that are in the best interest of the client as well as efficient on price.

    Partnership with a fund manager

    The solution in this case was partnership with a fund manager who was able to offer a solution that retained the historical performance of our own advisory portfolio’s but run on a discretionary mandate without the need for us, as a firm, to authorise ourselves.  

    This allowed us to retain our legacy and culture as well as continue to be part of the ongoing running of the investment portfolios via the investment committee, which we know is extremely important to our clients.

    The discussion around cost remains central to the continued maintenance of the models, but with the knowledge and expertise of professional investors this is not as big a mountain to climb as one might have initially thought. We are now much better equipped to identify and reduce cost in the portfolios as well as access funds at institutional rates to help drive overall cost down. The trend observed in our experience has been one of net cost reduction across the board.

    While this discussion is bespoke to each adviser and their strategy it certainly portrays a positive outlook for the industry in the sense that people and firms are more willing than ever to have a conversation; which in many cases puts advisers in the driving seat.

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