On Investing

Buckets of consistency

The results of our latest Adviser Survey at The Platforum are in – and 16 months since the RDR came into force, most advisers have their Centralised Investment Proposition (CIP) in place.

Almost three-fifths (59 per cent) say their firm is using a CIP; most of those that have not devised one argue that they are “too small” for this to be appropriate.

Looking at the average percentage of assets channelled into different strategies, model portfolios – either built in-house or supplied by third parties – claim the bulk. OBSR is by some distance the biggest third-party provider, followed by RSM.

The proportion of assets going into multi-asset and multi-manager solutions is on the rise – up by six percentage points since last quarter, while bespoke fund picking of single-strategy funds has retreated by four points.

Risk profiling is at the heart of many centralised propositions, with risk-rated multi-asset solutions and model portfolios continuing to be the outsourced solutions of choice. Tech companies providing risk profiling and asset allocation tools must see business booming.

Having a consistent investment process within an adviser firm is part and parcel of ensuring greater professionalism, and making clear to the end client the service (rather than, as in ye olde days, the product) being provided.

Yet there is concern in the industry about the limits of questionnaires that place investors in one risk bucket – and therefore one strategy – over another. Maybe it is because I’m a qual-y rather than a quant-y, but I could not help agreeing with an adviser who said to me recently, “Call me old-fashioned, but I prefer to talk to my client about their lifestyle and their goals, and from that decide what level of risk is right, as just one of several factors I look at.”

Another popular CIP is exemplified succinctly by this adviser describing his firm’s approach: “We have our own model portfolios in-house which we use for the middle band of clients. Above that is bespoke products and for the lower band we use a multi-asset fund.”  Indeed, we hear a lot about client segmentation based on portfolio value and resulting in bespoke service for higher value and off-the-shelf solutions for lower.

The chart above largely reinforces that this is a popular way of structuring a CIP – although we do see business being outsourced to discretionary managers at a lower level than some would expect.

Again, some question whether this is the right way to segment a client base. It seems to stem (understandably) from which services can be provided profitably, and the assumption that lower-value clients have more straightforward requirements. However, a competing view is that clients with £50k may still not fit an Architas or a Vanguard LifeStrategy fund, and conversely a client with £150k could well do. Just as the results of a risk questionnaire may not tell the whole story, the size of the pot probably should not determine investment approach.

I’m not suggesting that advisers shouldn’t be adopting such CIPs – as long as there is an acceptance on the adviser’s part that while 95 per cent of clients may fit, 5 per cent may require something outside of the CIP.

Encouragingly, advisers I have spoken to on the subject do acknowledge this.

My final forewarning is that, increasingly, firms will have to assess whether their offering is sufficiently different/superior to what is available in the execution-only space. One described their CIP as “ETFs managed by a DFM on a model portfolio basis”. Sounds like what Nutmeg offers D2C to me.

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