The hardest decision for an adviser to make should be that they need, not want, to outsource in the first place as this goes against two basic tenets of being an adviser – they have to admit to a limitation and then hand their client (or at least their money) over to another professional adviser.
How to outsource?
But the decision should be a simple one if they are offering their client the best possible service given the requirements of RDR, the deregulation of products, the increased regulation of investment professionals and firms, the ever-increasing breadth of products that are available, the volatility of markets, the macro uncertainty etcetera.
How to choose who to outsource to then becomes the hardest decision, especially as comparing the firms is made impossible by the firms, for a number of very good reasons, themselves keeping their performance cards very close to their chests.
The question they need to have the answer to is: “Which is the best wealth manager for my client?” and the latest ‘Guide to discretionary management’ from Defaqto goes a long way to outlining the different options available, be they multi-manager services, discretionary propositions (managed, tailored or unitised) or even multi-asset funds.
The guide does not set out to show how successful, for example, each discretionary manager running a portfolio with a cautious mandate was last year in making positive returns. What it does is compare the different types of company there are to outsource to and, at a high level, what types of service they offer.
When to outsource?
It is a very good starting point though before a decision can be made there are unfortunately a number of unknowns about what the investment landscape will look like from 1 January next year. The thorny issue of rebates being allowed or not is one of them, with some organisations building systems that assume rebates will be allowed, others that they will not.
One group will get it badly wrong.
Rather than this being a rant about why, with nine months to go, the full RDR parameters are still not known, I would rather pick on a positive conclusion. There is good news, according to Defaqto, for retail investors and discretionary managers alike:
“It is probably going to be model portfolios and, to a certain extent, unitised discretionary portfolios that are going to appeal to the mass retail market,” says Fraser Donaldson, the author of the guide.
“Given the importance of this distribution outlet [outsourcing from advisers to discretionaries] we would expect the level of commitment to the retail market to increase and service to the adviser market to continue to improve.”
There are nine months to go before RDR kicks off and a great deal of due diligence needs to be done between now and then but, if Donaldson and my gut are right, high net worth clients and their adviser should be far better off in an outsourced world.
