James Horniman, portfolio manager and head of adviser solutions at James Hambro & Partners, notes these clients are much more sensitive to volatility, which means an increased focus on the underlying portfolio.
“When outsourcing the investment management – especially if you are leaning towards a cost-effective, actively managed portfolio solution – it is worth looking for a portfolio run to a specific mandate, with a focus on yield and dampened volatility.
“It is also worth challenging the manager as to how they will achieve this. Historically they might have relied on fixed interest to provide a volatility brake, but that option looks less appealing at the moment. The adviser has a valuable part to play in helping the client manage their cash flow in retirement – it could be that they are drawing down more than they genuinely need from their pension pot and, when markets are falling, it may be sensible to draw less.”
Regulation is also likely to be a headwind to the sector, with rules such as MiFID II – currently scheduled to apply from 2018 – increasing transparency around costs associated with managing client wealth.
Mr Binnie adds: “There should be nothing to fear as long as the costs are fair. There will also be additional costs of providing higher levels of risk management to meet the ever-increasing minimum standards expected by the regulator. Operating models will need to move with the times. It isn’t the case that there will be pressure on costs – there is pressure on costs now. Those who embrace technology but don’t lose the personal touch will see improved margins with the additional benefit of higher levels of client retention.”
Guy Stephens, managing director of Rowan Dartington Signature, points out that increased regulation could lead to “further consolidation”. He explains: “Cost pressures are an issue for the smaller DFM with funds under management under £250m, posing viability issues post-Mifid II.”
But Mr Binnie adds: “A downward pressure on cost isn’t a new phenomenon. Like everything else, wealth managers need to provide value. If you cannot show value, then it is just a cost comparison and we will become a commoditised industry.
“Regulation is often seen as a bad thing. At its core, it is about providing good client outcomes. Isn’t that what we all want anyway?”
Nyree Stewart is features editor at Investment Adviser
