Charlotte Richards discovers how keeping control of the investment function can benefit you and your clients.
In 2004, the late Steve Jobs, co-founder and former chief executive of technology giant Apple said: “I’ve always wanted to own and control the primary technology in everything we do.”
For advisers wishing to remain independent post RDR, this quote could not be more relevant. Jobs’ philosophy was to remain in total control of the design, software and hardware of his products rather than outsource to other third party companies.
Should independent advisers apply the same mantra when it comes to making investment decisions for their clients?
The complete package?
In recent years, the industry has witnessed a widespread trend of advisers outsourcing asset allocation work to either multi-managers or discretionary fund managers. This, proponents claim, frees up advisers’ time, allowing them more opportunity to develop client relationships and drum up new business.
The FSA has also expressed concerns about the quality of advice around firms’ use of ‘centralised’ investment solutions, putting further pressure on advisers.
In April, the regulator set out examples of good and bad practice it had discovered around firms’ use of in-house model portfolios, discretionary fund managers and distributor-influenced funds in its guidance consultation.
The FSA said poor outcomes can occur if advisory firms fail to:
- Consider the needs and objectives of their target clients when designing or adopting a centralised investment proposition (CIP);
- Consider whether the CIP is suitable for each client on an individual basis;
- Establish a robust control system to mitigate risks which might arise from the CIP.
Some advisers believe outsourcing is the only option if they do not have sufficient knowledge of all investment products on the market. However, critics of outsourcing believe keeping the investment function
in-house is crucial, with some going as far as saying it is key to staying independent and necessary if advisers want to keep control of their business.
Alan Smith, chief executive at Capital Asset Management, moved the investment function back in house last year because he was dissatisfied with any alternative out-of-house approaches.
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