Industry Voice: Does white labelling have shades of grey?

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Industry Voice: Does white labelling have shades of grey?

Life is rarely black or white and so with white labelling of model portfolios on platforms a few shades of grey have crept in!

Financial advisers are asking:

  • What exactly are the benefits to me and my clients?
  • What is the best route to deliver these models on platforms?
  • Are there any areas that should concern me?

There are 3 options for delivering white labelling:

1. Use of Intellectual Property (IP)

A Discretionary Fund Manager (DFM) delivers IP at fund level to populate an asset class or model level e.g. asset class and fund selection. The resultant models are aligned to the risk assessment process used by the financial adviser who then builds these on the selected platform(s).

The models are then managed either on an advisory or discretionary basis and updated based on the  IP delivered by the DFM.

In this arrangement there are clear roles and responsibilities. The adviser owns and manages the models and takes responsibility and liability for client outcomes.

This perhaps isn't true white labelling but it's definitely a variation.

2. Full white label 

In this situation, the DFM builds and manages portfolios based on some or all of the following:

  • Client bank segmentation
  • Investment philosophy - active/passive/hybrid/ESG
  • Client outcomes - income/growth
  • Cost

Portfolios are built and managed on the platform by the DFM but branded for the IFA business. Any documentation indicates that the DFM is taking the investment decisions and using their permissions to manage the money so there are clear roles and responsibilities of each party.

3. Hybrid model 

The DFM builds and manages portfolios on the platform as mentioned in option 2. The portfolios are white labelled but the financial adviser sits on the investment committee and can influence the management and selection of investments.

The challenges are:

  • To what extent should an adviser exert influence and if they do, is this a problem?
  • Is this hybrid situation acceptable until something goes wrong?
  • Where does liability lie?
  • How are any disagreements managed?
  • What does the client think is happening?

This half-way house could cause some confusion and whilst an adviser needs to understand why investments decisions are taken in order to support client communication, the question here is around level of oversight versus influence.

Perhaps this scenario can work but has to be subject to well documented processes, good controls, governance and oversight? Removal of the shades of grey, perhaps?

Gillian Hepburn, Intermediary

Solutions Director, Schroders

 



Important information

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Schroders has expressed its own views and opinions which may change. 

This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Nothing in this material should be construed as advice or a recommendation to buy or sell. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. No responsibility can be accepted for error of fact or opinion. Issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU, registered No. 1893220, who is authorised and regulated by the Financial Conduct Authority. 

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