• Discretionary investment management – either in-house or referred to a third party where the adviser has some say in the investment strategy adopted.
• Distributor-influenced funds (DIFs)
The regulator’s view
In its finalised guidance, the FCA said that while there were benefits to using centralised investment propositions, there were also some drawbacks.
It noted: “We recognise there can be benefits to offering a CIP for both clients and firms. Clients can benefit from more structured and better researched investments, and firms can benefit from efficiencies in the management of risks associated with investment selection. However, we have concerns that a CIP may [sometimes] be unsuitable for a retail investor.
For example:
• ‘Shoehorning’ – firms might recommend a ‘one size fits all’ solution that is not suitable for the individual needs and objectives of a client;
• Churning – firms might advise clients to switch their existing investments into a CIP without adequate consideration of whether the switch is both suitable and in the client’s best interest;
• Additional costs – the use of a CIP might result in higher (and potentially less transparent) charges than the client’s existing investments, and with few additional benefits.
PLATFORMS AND DFMs
In a recent newsletter, the Platforum’s Heather Hopkins suggested the trend for outsourcing on platforms may have peaked.
She explained: “Advisers tell us that some 40 per cent of their assets are outsourced (to model portfolios or bespoke fund picking), a figure that we believe has plateaued.
“Since the RDR we have seen a steady and strong trend to outsourcing fund selection, but those relationships are established now and we are no longer seeing a trend to outsource ever more assets.
“We’ve also seen a shift to model portfolios from bespoke fund-picking, particularly in the past year. Bespoke fund-picking is still de rigueur for a certain slice of the top end, but model portfolios are generally much cheaper and now account for 46 per cent of adviser assets, and can be accessed from as little as £10,000.”
