“This is going to be suitable for somebody who wants to overlay their own research with other research. It is a recommended portfolio that an adviser can use as their own model portfolio but they have some latitude within a constrained environment where at least they understand the research that has gone behind it,” adds Treve.
The fact the IFA is still in charge of the execution of the investment selection means they will also have ultimate responsibility for the deicisions and alongside that comes risks.
Nigel Whittingham, managing director at Morningstar OBSR, says his firm offers a similar service which is either hosted on a platform or supplied to the IFA directly.
Misnomer in play
But he thinks there is a misnomer in use when such portfolios are referred to as ‘model portfolios’ and says a more accurate name would be ‘sample portfolios’.
“We are taking a risk profile and saying ‘this is how we would populate it from an asset allocation, tactical and fund selection point of view’. Unless the IFA has discretionary permissions they will have to get in touch with the client before executing any changes,” Whittingham adds.
This will appeal to advisers who are nervous about the three-way relationship between themselves, their client and a DFM morphing into a direct relationship between the client and the DFM.
“There is definitely a section of the IFA market that feels strongly about that,” says Whittingham, “As long as the adviser recognises that they will have to go back to the client to get sign off for everything and has the resource and processes to deal with execution on their own then it could be right for them.”
If, on the other hand, advisers want to focus on being financial planners and to rid themselves of the ultimate risk, responsibility and research for investment decisions, FE’s service will not be for them.
With a couple of months still to go before implementation of RDR the jostling of ‘outsourcing’ service providers is set to continue. It will be interesting to see those who have truly gone back to “first principles” as FE claims to have done, and pitched it right for the changing adviser community.
If you are a DFM, which type of model portfolio or outsourcing solution do you offer? If you are an adviser, what are you looking for from an outsourcing proposition? Use the comments box below…
