In recent years the idea of a centralised investment proposition (CIP) has become the dominant form of investment structure in the financial adviser community – actively encouraged by the regulators.
The CIP is described by the FCA as “a standardised approach to investment advice”.
As part of this drive to develop a holistic investment advice strategy, there has been an increase in the number of advisers putting clients’ money into model portfolios on platforms set up by discretionary fund managers (DFMs).
DFM models tend to be risk-rated ranges of portfolios that generally invest in between 15 to 20 funds across a range of asset classes.
Heather Hopkins, research director at Platforum, says outsourcing client money in this way is popular as it “gives advisers more control over client assets, and in particular makes it much easier for the adviser to fire the DFM”.
Wraps such as Novia and Ascentric were early adopters of the idea of providing DFM portfolios on their platforms, and remain among the favourites.
However, Standard Life recently announced it had reached £1bn in assets on its Investment Hub, a collection of DFM models that only launched last year, which shows the growing popularity of the service.
Clive Waller, managing director of CWC Research, says it is difficult to get definitive numbers on the proportion of advisers outsourcing to DFMs, but from his research he found around three-quarters of advisers with a CIP use model portfolios in some way.
Of these advisers, 20 per cent say they use an external provider, which mostly means using DFMs.
Mr Waller said of those advisers that use DFM models on platforms, performance was cited as the most important criteria for picking a provider – even though Mr Waller points out there is no way to easily compare performance – followed by service and then cost.
But many advisers still oppose the idea of using DFM model portfolios on platforms – even those who do outsource some of their clients’ money direct to discretionary managers.
Peter Matthew, managing director of Jacksons Wealth Management, says: “If you’re going to use a DFM, why not go direct and cut out the platform charges?
“They seem to be a kind of cut down version of what the DFM would do on their own systems, because the platforms being used don’t give access to all the institutional-level stuff the DFM might normally use. So you get inferior portfolios at higher cost.”
Aj Somal, chartered financial planner at Aurora Financial Planning, echoes the concerns on fees, adding that “it is very difficult to find out the true total cost of these portfolios”.
Matthew Jeynes is a freelance journalist
CENTRALISED INVESTMENT PROPOSITIONS EXPLAINED
What are they?
In its finalised guidance on assessing suitability the FCA said: “We use the term CIP to reflect a standardised approach to providing investment advice.” Examples of this include:
• Portfolio advice services – recommending a portfolio designed to meet a target asset allocation. Firms may operate a number of these ‘model portfolios’ to meet the needs and objectives of clients with different risk profiles.
