What becomes absolutely clear from both of these is that clarity of communication between whoever is involved is essential.
What also becomes clear is that clarity of communication is only possible on a one-to-one basis, which means that intermediaries and high net worth individuals have to do their research one firm at a time.
Discretionary due diligence
Defaqto highlights key areas for advisers’ due diligence when considering a discretionary manager to outsource to. They include looking at the type of discretionary management being offered; their investment philosophy and the capability; their performance including costs and charges.
Each intermediary will have to ask the right questions of each and every discretionary firm they are considering because there is no single source that collates all of this information. It is difficult to find any information source that groups together anything more than their basic contact details.
At the same time, Scorpio’s research concludes “brands are a critical driver for HNW asset growth and nearly 80% of the total wealth market today is managed by 20 global financial brands”.
The danger of all this is that in the post-RDR World where outsourcing by HNWI and advisers to discretionary managers will become more prevalent is that the big brands will win out simply because they are big brands.
Small firms; big brands
The smaller firms will either have to build up a brand themselves or struggle to generate business outside word of mouth which is a dangerous business model to rely on in an increasingly competitive market. This is evidenced by Defaqto’s research, of 232 advisers using platforms, that shows 51% are already outsourcing some or all of their investment process – and this is 18 months before RDR – with discretionary managers now overtaking multi-managers as an outlet.
By return, Scorpio Partnership found a number of obstacles to smaller wealth management firms building up their brand including a lack of senior management buy-in; the lack of real data on clients beyond what the relationship managers shared, normally informally; a lack of standardised segmentation and pricing; and, crucially, poor communication of their offerings.
This in turn will lead the smaller firms to look to outsource more, and we are back to where this article started…
