Is your advisory investment proposition still meeting your clients’ requirements or is it simply a resource-heavy struggle to retain control of cost and client money?

    Perhaps now is the time to consider an alternative.

    Historically, an advisory investment mandate is one that has been popular with advice firms of all sizes. In consideration of regulatory changes over the past 10 years, perhaps this has proven to be a good strategy for retaining control and shielding clients from potentially high investment manager charges.

    Having said this, some firms may now find themselves running advisory mandates that are significant in size and a drain on resources, and therefore cost.

    While there are definite benefits to an advisory mandate, I believe there is a critical mass at which, unless you’re planning to become an investment manager yourself, such a mandate becomes unsustainable or requires significant investment to achieve a level of sustainability.

    I’m also sure that in justifying an advisory mandate, firms can argue that they have achieved performance in line with, or even surpassing, those expensive investment managers.

    While, to some end, I have experienced this myself, I would argue that things are changing in the IM market and that the options available to advisers are changing with it.

    Charging – are we being asked to think again?

    We’re all aware of the trend in conversation among advice firms, as well as between advisers and clients, surrounding charging. We know that with the implementation of RDR in 2012 and MiFID II in 2018 the focus for advice firms has certainly been on client costs and charges, as well as the associated reporting.

    This has led firms, in most instances, to make changes to the service they are offering. Whether this change was structural, procedural, cultural or otherwise I would almost guarantee changes were made.

    However, are we now being asked to think again?

    Don’t be alarmed - I refer directly to the FCA’s Product Governance Sourcebook (PROD) which came into action at the same time as MiFID II; the existence of which being to support the implementation of the product governance requirements associated with the directive. As with the nature and timing of the PROD regulation, it would have been key a consideration of most firms in any changes they deemed necessary throughout the implementation of MiFID II.

    As dry as it may seem, I make specific mention to such regulation for good reason. That’s because it potentially not only provides an opportunity of a different outlook for existing financial services firms but can also supply a platform from which new firms have been able to launch and potentially even disrupt the market. This means choice…

    In terms of possible disruption, certainly in light of Covid, I believe we're observing a change in tack. For some firms, certainly those newer to the market, this seems to come in the form of a competitive pricing model as well as an agile operational framework, characteristic with start-ups, that allows them to adjust and make implementation quickly and effectively.

    An example that I am aware of is O-IM who officially entered the Investment Management  market in 2021. It just so happens that the founders were working in the same line of business as me during my time at JP Morgan Chase, only to become aware of the fact when coming across their marketing at launch. This is an example of individuals with a wealth of banking and financial services experience taking a step towards making a positive difference in the IM market and challenging the ‘traditional service offering’ of IM firms with the aforementioned agility of a start-up.

    The other side of the coin would be existing firms. We frequently hear about the large and often wide-reaching managers but don’t always consider the smaller ‘boutique’ firms. Many of which share an ethos consistent with that of local IFAs. I know from my own experience in working with firms, such as 8AM Global, that partnership can often be a great facilitator for change within a business enabling a proposition that perhaps would have otherwise been out of reach.

    In closing, and in consideration of the FCA’s ‘Dear CEO’ letter of January 2020, it’s evident that the attention of our regulator is potentially turning towards firms’ compliance with PROD regulation.

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

    I’ll share my thoughts on what a specific approach might look like next time.

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