DFM Market Update 2016
October 2016
Sponsor
Accredited by
Contents Introduction 3 Learning objectives
4
Market news
5
Market trends
6
Why outsource?
9
Outsourcing options
11
Due diligence – getting it right first time
16
Pension freedoms
27
Service 29 Test yourself for CPD
32
Appendix 34 About Defaqto Acronyms The most common acronyms used in this paper are: AIM
Alternative Investment Market
AMC
Annual Management Charge
AUM
Assets Under Management
BPR
Business Property Relief
CGT
Capital Gains Tax
CIO
Chief Investment Officer
CIP
Centralised Investment Proposition
ETF
Exchange Traded Funds
IHT
Inheritance Tax
MPS
Managed Portfolio Services
NURS
Non-UCITS Retail Schemes
SMPS Services managed portfolio services UCITS III Undertakings for Collective Investments in Transferable Securities
46
Introduction This market update is designed to help advisers keep up to date with this evolving market. It is still a relatively new area to many, where investment choice is growing and regulatory demands, particularly around due diligence, are also increasing. As is often the case in the financial services industry, evolution rather than revolution is the key. We have not seen huge changes in the market, but there are some interesting trends. Platforms are at the heart of most adviser businesses now. The days of wrangling over who should hold custody of client assets are over, with discretionary firms understanding that to play in the retail adviser market, more often than not custody needs to be conceded to the platforms. The last couple of years have also witnessed a change in mind-set of both adviser and discretionary firms, hopefully to the benefit of all. For the most part, discretionary managers have learnt quickly that advisers require information to help make their selections, and there is a regulatory imperative to do so. It has become much easier to collect like for like information on costs, performance and portfolio structure, and we will share some of this data with you.
Fraser Donaldson
Insight Analyst (Funds and DFM)
[email protected] 01844 295 432
The advent of new pension freedoms means that adviser requirements around investment choice and retirement income management have increased. This review will take a look at what additional elements should be added to an adviser’s typical due diligence process. At the turn of the year, Defaqto undertook its first DFM service review. We will share some of the results in this guide, in particular what advisers see as the most important facets of the service they receive and where DFMs are failing to meet expectations. Finally, this guide will take a wider look at the market and perhaps serve as a refresher on what is now considered to be good due diligence.
3
Learning objectives Reading this DFM market update will enable you to:
4
•
Understand the direction the discretionary market is taking and be able to factor in potential future changes when monitoring existing solutions and selecting new solutions
•
Adjust your client recommendations and selection due diligence based on recent activity and trends in the market
•
Be clear about the different types of discretionary solutions on offer
•
Describe the different discretionary solutions, relating them to client needs and suitability and as a result make better and more robust selection decisions
•
Achieve some clarity on what the regulators expectations are in terms of due diligence
•
Understand that outsourcing changes the client/adviser dynamic. Rather than the adviser providing the solution and having to defend all investment decisions, both will be working together to find the best third-party solution
Market news Month/Year
News
2016 June
Old Mutual to list wealth management arm
June
Charles Stanley announces expansion of its financial planning arm
May
Parmenion announces addition of exchange traded funds (ETF) model portfolios to the platform
May
Ingenious Asset Management rebranded Tilney Asset Management following regulatory approval
May
JM Finn plan to launch a managed portfolio service (MPS) aimed at the intermediary market. It will offer five risk graded portfolios. (Launched in July)
April
Tilney Bestinvest announces the acquisition of national advisory firm Towry for £600m
March
Former Prudential Insurance Chief Investment Officer (CIO), John Betteridge, appointed CIO at Rowan Dartington
March
Cofunds announced the launch of a discretionary management service
March
Whitechurch Securities announces the launch of a range of ethical portfolios. Also available on a bespoke basis for higher net worth clients
March
Momentum acquires London & Capital advisory business
March
Old Mutual announces the separation of its four main businesses: Emerging Markets, Wealth, Nedbank Group and Asset Management in the US
January
True Potential launches a new range of 10 multi-manager portfolios, covering 5 risk profiles
January
Former Sanlam private client head, Charles Cohen, appointed Senior Investment Director at Canaccord Genuity Wealth for the London team
January
Canaccord Genuity Wealth renames REMAP portfolio service to GPS Optimised Portfolios
January
Church House Investment Management has launched an MPS offering six portfolios spread across different risk profiles
2015 Walker Crips introduces a new MPS range Alpha:r2. Includes five risk/return portfolios available either in collectives or direct equities and bonds. Also available are two higher income portfolios and an ethical portfolio St James’s Place Wealth acquires discretionary fund managers Rowan Dartington in a deal reported to be £34m Charles Dixon, former Head of Brooks Macdonald London office, joins Mountstone Partners Towry acquires Ashcourt Rowan for £97m Robin O’Grady joins Hawksmoor from Saltus as New Business Development director Aberdeen Asset Management completes the purchase of platform and discretionary managers Parmenion Individually, a relatively quiet year, but in one or two of the stories we can see firms positioning themselves to take more control over the distribution chain. 5
Market trends As we mentioned in the introduction, on the surface it doesn’t seem like there is much change going on in the market, especially if you look at it over short periods of time. However, there does seem to be a significant shift over time in the dominant avenue of distribution, and there is no coincidence that this has happened in the lead up to and just after the Retail Distribution Review (RDR).
These propositions are split: • 71 Bespoke • 50 MPS direct with the DFM • 62 MPS on a platform It is interesting to note that there are now more MPS solutions available through a platform than there are direct with a DFM. Defaqto has looked at new launches over the last 10 years or so, which reveals the following:
Defaqto currently cover some 183 propositions, from 84 discretionary firms. By no means whole of market, but an overwhelming majority of those firms looking to play in the advised retail space. Discretionary launches
Number of new launches
20
15
MPS on platform
10
MPS direct 5
0
Bespoke Pre 2008
2008
2009
2010
2011
2012
2013
2014
2015
Year of launch
Chart 1: Discretionary launches, source: Defaqto
Note: Pre 2008 launches of bespoke go off the scale, numbering 48. New launches do seem to be tailing off, indicating that most DFMs have already positioned themselves for the post-RDR market. What is noticeable though is that, for a number of years now, launches of MPS on platform have heavily outweighed launches of MPS through the discretionary firm. So, what has brought us to this point? It is true that DFMs have had to accept that to successfully break into the retail market their propositions would have to be made available on adviser platforms. The reason? Well, a significant amount of adviser client 6
assets had already been moved to platforms long before the DFM industry decided to market seriously to the adviser. The platform market was well established pre RDR and as advisers re-assessed their client offerings in anticipation of the new distribution era, for many the platform was already at the heart of advisory businesses. DFMs quickly realised this and from about 2010 on, the priority for most was to establish distribution through these platforms.
Today there are still DFM firms that steadfastly refuse to offer their solutions on a platform, reluctant to give up custody of assets. Equally, there are those that only make their discretionary solutions available through a platform. This latter category is the fastest growing with 32 out of the 61 we cover only available through a platform. And what difference does this make? Well, the differences between solutions available direct from a DFM and those from a platform are well
documented, and we will touch on that in more detail later. However, the primary difference is that if the solution is designed specifically for a platform, platform restrictions will have been taken into account when designing the structure of the solution and there should be much fewer compromises on investments compared to those offerings that are trying to mirror existing direct ones. The MPS solutions that are only available on platform, with no obvious equivalent, are as follows:
Provider
Product
Apollo Multi Asset Management
Athena Controlled Risk Discretionary – Platform
Beaufort Investment Management
Discretionary Portfolio Management – Platform
Brewin Dolphin
Managed Portfolio Service
Brown Shipley
Platform Model Portfolio Service
Charles Stanley Pan Asset
PanASSET Model Portfolio
Charles Stanley Pan Asset
PanDYNAMIC Model Portfolio
City Asset Management
Platform Based Model Portfolios
Clarion Investment Management Limited
Discretionary Investment Management
European Investment Management Ltd
Model Portfolio Service – MOSAIC Platform
Hawksmoor Investment Management Limited
The Model Portfolio Service
IPS Capital LLP
IPS Managed Portfolio Service
King & Shaxson Capital Limited
Platform Ethical Portfolios
Kleinwort Benson
Managed Portfolio Strategies
London & Capital
Discretionary Managed Portfolios
London & Capital
Global Model Portfolio Service
Morningstar Investment Management Europe
Morningstar Managed Portfolios
Myddleton Croft
Model Portfolio Service – Platform
Newscape Capital Group
Model Portfolio Service
Novia Financial plc*
Copia Capital Management
Parallel Investment Management
Model Portfolio Service
Parmenion Capital Partners LLP*
Discretionary Management Service
Price Bailey Financial Planning
Portfolio Management Service – Platform
Richmond House Investment Services Ltd
Discretionary Management Services
Sarasin & Partners
Sarasin Model Portfolios
Shipman Investment Managers
Managed Portfolio Service
Smith & Williamson
Managed Portfolio Service 7
Provider
Product
Standard Life Wealth*
Managed Portfolio Service
Tatton Investment Management
Tatton Strategic Managed Portfolio Service (SMPS)
Tavistock Wealth
Central Investment Proposition – Partner Profiles
Tavistock Wealth
Central Investment Proposition – Tavistock Profiles
Thomas Miller Investment Ltd
Model Portfolio Service
Waverton Investment Management Ltd
Model Portfolios based on Platform
* Not normally classified by Defaqto as MPS on platform, but in this instance the principle applies that the solutions will have been designed with their own platforms in mind.
It took some time for DFMs to accept that handing over custody of assets to platforms was essential to success in the adviser market. With some platforms now saying that up to 80% of their new assets acquired are invested in model portfolios, whether that be advised or discretionary, we can conclude that we are in a position where both platform and DFM need each other equally.
8
Why outsource? The reasons for outsourcing investment to a third party have been well documented, but it is worth reminding ourselves, in brief, of the key reasons. All adviser firms went through a period of self-examination leading up to RDR implementation in order to be able to provide a robust, suitable service proposition to clients. The decision to outsource is, fundamentally, based on three key elements: • Client outcomes – What is best for the client? • Resource – What is available and what is required to run portfolios internally? • Strategic considerations
Client outcomes Regardless of what the adviser feels they should be doing for their clients in terms of justifying a fee, many have taken a step back and questioned whether they were best placed to be managing, monitoring and making investment decisions on behalf of their clients. With uncertain, volatile markets, many concluded that they did not have the skill, experience and time required to manage client portfolios. In other words, the prospect of good client outcomes would be enhanced if, through outsourcing, investment specialists were brought in to manage client portfolios.
Resource As we have touched on above, there are some fundamental requirements for running an investment proposition, and advisers will have examined whether they have all the elements in order to achieve the best outcomes for their clients. These would include: •
Having investment expertise across a wide range of investment types, coupled with long- and short-term market views – ie a tactical and strategic approach
•
Having sufficient time to dedicate to building, maintaining and monitoring portfolios regularly and consistently
•
Having the correct permissions, particularly if adviser-run discretionary services are employed (even if the investment decision making is undertaken by a third party)
•
Defending, explaining and taking responsibility for all investment decisions including those connected to asset allocation and asset class selection
Strategic considerations •
Constructing a centralised investment proposition (CIP) will lead to consistency of advice to similar groups of clients, assuming client segmentation has been done thoroughly
•
Using third parties to undertake the investment decision making will de-risk the adviser business. Responsibility for the right advice, suitability and due diligence on the selected outsource partner(s) still lies with the adviser, but other responsibilities (those that the third party has been commissioned to undertake) can be delegated 9
•
It may simply be a cheaper, less complex alternative to use the expertise of third parties rather than building a proposition internally
•
Some advisers will see the outsourcing of investment as an opportunity to re-focus on applying the core skills of financial planning
•
Client relations are likely to improve if the adviser is on the ‘same side of the table’ as the client as they work together to select the most appropriate investment solution. Adviser/client relations can get more strained if the adviser finds themselves having to defend their own investment decisions. Perhaps a subtlety, but could be an important one
So, having made the decision to outsource, where do we look?
10
Outsourcing options Having made the decision to outsource, the selection of thirdparty investment managers to partner with becomes the next step. Essentially, advisers will be looking at multi-asset funds or discretionary managed portfolios, or more likely a selection of both catering for different client segments. In 2012, the Financial Services Authority laid out what they believed to be a good practice structure for a CIP (centralised investment proposition). It read as follows: ‘Several firms segmented their client bank effectively and designed appropriate solutions to cater for each segment. This included: •
A preferred fund panel for transactional clients
•
A suite of low-cost managed funds for clients with modest asset levels who required a low-cost ongoing service
•
A model portfolio service for clients with a higher level of assets and investment experience, where the additional costs were appropriate
•
Discretionary fund management for clients who required bespoke investment management solutions’
Source: Financial Services Authority, July 2012. Assessing suitability: Replacement business and centralised investment propositions (FG 12/16)
In our experience, many advisory firms have based their propositions on this structure. Four years on, the regulators may replace ‘low-cost’ with ‘value for money’, and the emphasis may not be so much on the level of investable assets, but the structure still holds, providing investment choice for a wide range of clients and circumstances. In pictorial terms, advisers will be constructing a matrix of solutions that covers the following:
Outsourced investment solutions
Discretionary fund management
Managed portfolio service
Direct with the DFM
Bespoke portfolios
Multi-asset funds
Multi-manager
Bespoke portfolios
Through a third-party platform 11
Vive la difference So, many advisers have established a CIP, featuring multi-asset portfolios, whether they are funds or discretionary. It is worth reminding ourselves what the fundamental differences are between these options. The main differences are summarised in the table below:
12
Service aspect (feature/benefit)
Managed funds Discretionary (multi-manager/ (bespoke) multi-asset)
Discretionary (managed portfolio service from the DFM)
Discretionary (managed portfolio service through a platform)
Suitability responsibility
The adviser
Usually the discretionary manager
Usually the adviser
The adviser
Investment mandate
Set by the fund manager
Set in discussion Set by the with the client and/ discretionary or adviser manager
Minimum investment
From £1,000 and monthly investment usually available
Generally £200,000 and above depending on level of service and assets employed
Generally £20,000 Can be as low as to £50,000 upwards £1,000. Usually the same as the platform minimum. Competitive with fund entry levels
Charges
Standard charges usually quoted within terms and conditions. OCFs ranging mostly between 0.5% and 0.75%
Often by negotiation dependent on level of investment and level of service required. Tiered levels of charging often apply
Standard charges usually quoted within terms and conditions. Can sometimes be negotiated lower dependent on level of investment of the client or level of investment overall through the adviser. Generally in region of 0.5% to 1%
Considerably lower than direct with DFM as most service, administration and custody is undertaken by the platform. Generally in region of 0.25% to 0.5%. Do not forget to factor in additional platform charges
Customisation opportunity
None
Yes, portfolio and service built to client needs and goals
Yes, but generally limited
None
Set by the discretionary manager
Service aspect (feature/benefit)
Managed funds Discretionary (multi-manager/ (bespoke) multi-asset)
Discretionary (managed portfolio service from the DFM)
Discretionary (managed portfolio service through a platform)
Investment manager
Management team published and often held up as a selling point. Probably familiar to adviser
Usually an investment manager is appointed to look after each client. The amount of autonomy the investment manager has varies considerably. In reality in the retail space most portfolios are built around a core model portfolio. Few investment managers will be known to the adviser market
Some services will introduce advisers to portfolio managers, but most will manage relationship via business development teams. Client will rarely have access to the investment managers
Potentially no contact at all with either client or adviser. Some services will introduce advisers to portfolio managers, but most will manage relationship via business development teams
Client influence
None
Client led
None
None
Personal service
None
Yes, but to highly Fundamental variable degrees to bespoke management. Portfolio management representatives are almost always available, and often both the adviser and the end client will have full access to the portfolio manager or members of the portfolio management team. DFMs are increasingly leaving the final decision on the end client’s access to managers with the adviser to further protect that relationship
None, as client usually not known to discretionary managers. Service aspects down to the platform
13
Service aspect (feature/benefit)
Managed funds Discretionary (multi-manager/ (bespoke) multi-asset)
Discretionary (managed portfolio service from the DFM)
Discretionary (managed portfolio service through a platform)
Transparency
Easy to assess both past performance and costs
Availability and complexity of this data varies considerably from company to company
Better than bespoke DFM but still variable. Dependent on firm, but as an industry improving all the time
Better than bespoke DFM but still variable. Dependent on firm, but as an industry improving all the time
Taxation
Capital Gains Tax (CGT) liable on exit from the fund
CGT liable after each sale. Part of bespoke service can be CGT management
CGT liable after each sale but less relevant as models often deal in smaller values of investment. Usually down to adviser to monitor and manage this
CGT liable after each sale but less relevant as models often deal in smaller values of investment. Usually down to adviser to monitor and manage this
Asset types
Most used thanks Dependent on to Non-UCITS Retail service but most Schemes (NURS) can be employed and Undertakings for Collective Investments in Transferable Securities (UCITS III) regulations
Most MPS solutions tend to use collectives as the base for portfolios. This permits sufficient diversification for smaller investors. Some will use direct holdings and alternatives
Most MPS solutions tend to use collectives as the base for portfolios. Will depend on what asset types the platform has access to
Existing assets
Not accommodated Can almost always be accommodated within service
Not accommodated Yes, if facilitated by except in very rare the platform circumstances
Reporting
Usually standard final and interim reports for the funds
Units are usually Valuations (outside of regular priced daily and will be reports) published (either on manager’s website or possibly in a national newspaper)
14
Standard half yearly or quarterly. More frequent reporting can sometimes be arranged
Usually standard half yearly reports
Usually standard half yearly reports
Access to portfolio manager when required. May have online view facility. May be a charge for additional valuations
May have online view facility, otherwise adviser can request from account manager. May be a charge for additional valuations
Online views of valuations and transactions are a given on a platform
Service aspect (feature/benefit)
Managed funds Discretionary (multi-manager/ (bespoke) multi-asset)
Discretionary (managed portfolio service from the DFM)
Discretionary (managed portfolio service through a platform)
Change of manager/fund
Relatively straight forward sell and buy
As with bespoke
As long as staying with the same platform, this should be relatively straightforward, perhaps as simple as a fund switch. The platform is the custodian for all hosted MPS
Administratively a bit trickier. Some holdings may not need to be sold so transfers need organising to new managers (if permitted by old managers)
So, once the adviser has a clear idea of which proposition types will make up their CIP, this leads us nicely into the selection process and the section on due diligence.
15
Due diligence – getting it right first time We have had the UK regulators issuing guidance on due diligence and endless speculation and scepticism in the financial press about what MiFid ll will bring to the table in terms of what will be required from all parties to satisfy regulation and more importantly to achieve the highest possible likelihood of good client outcomes. There is no such thing as good due diligence or deep due diligence. All due diligence should be good and in depth enough to make sound decisions on behalf of clients. This has never changed. All the regulators are trying to do is to remind us all what is required and to ensure that rules, practices and processes are in place to make this possible. We should always have it in mind that inadequate due diligence can lead to unsuitable advice to clients, and in some circumstances poor client outcomes. Due diligence should always start with knowing your client or knowing your client segments. At its simplest, due diligence is finding out about the firm providing the product or service and then finding out about the proposition itself. It is then a matter of exercising professional judgement as to whether the findings are acceptable to the client. Without knowing your client or client segments, due diligence will inevitably be flawed. There are of course various ways to undertake these exercises, but the first step would usually be to narrow down the universe, create a short list and then look at what is on the short list in more depth.
16
The fundamentals Many of our adviser panel clients take the approach of breaking down the due diligence into two stages. Firstly, to narrow down the universe they will have some fundamental criteria in mind that any prospective DFM must pass. What these fundamentals are will depend on the adviser and what they believe are the most appropriate ones for their clients. An example of criteria selected may include: • Launch date • Discretionary assets under management (AUM) • Range of portfolio options • Fees • Assets vehicles used in portfolios • Specialisms eg ethical
Preferred In addition, there will be a selection of criteria that may not be game-changers, but would be considered ‘good to have’. Advisers would exercise their professional judgement here. Several DFM options could be chosen to cover all bases. It is also worth asking the DFM if they are flexible enough to provide a particular feature that would not normally be in their terms. The answer to this is likely to depend on future asset commitment.
Due diligence – what does good look like? There is of course no standard, right answer to this. The answer is likely to be individual to each adviser firm, and in some cases to individual clients. In terms of what good due diligence looks like, it should be common sense. Adviser businesses will have certain questions about firms they are considering doing business with, and clients will have certain questions about what is going to happen to their invested capital and what their expectations should be from initial investment, through the investment journey and finally in terms of expected outcomes.
The basics We have had formal guidance from the regulators on what should constitute minimum due diligence. Their final guidance paper FG 12/16 (Assessing suitability: Replacement business and centralised investment propositions) helpfully outlines some of the fundamental due diligence that is expected.
This includes: • Terms and conditions • Charges • Provider’s reputation and financial standing • Range of tax wrappers that can invest in the CIP • Type of underlying assets in which the CIP invests • Flexibility and whether it can be adapted to meet individual client’s needs and objectives • CIP provider’s approach to undertaking due diligence on the underlying investments
The CIP refers to a range of available investment propositions that may include funds as well as discretionary solutions. However, it is logical that the above can refer to either the CIP as a whole, or individual elements of it when viewing as an option for client segments. 17
Deeper due diligence Since publication of the final guidance paper in 2011, the regulators have been encouraging advisers to go further in their analysis. There may be some overlap with the basics as listed above, but a good foundation for decision making should also include: Financials Advisers may wish to satisfy themselves that the firm is financially strong, here to stay and committed to the adviser market. A combination of factors can be considered here including group assets under management, discretionary assets under management, growth in discretionary assets under management and the percentage of business that is received from the adviser market.
Investment style There are fundamentally two investment styles:
•
Return focused – aims to outperform a stated benchmark, over time. Management of risk and volatility would not be a priority, although awareness of risk would be expected
•
Risk targeted – managing volatility within a target range is the priority here, but we would also expect to see reasonable returns for the risk undertaken
Assets employed The type of portfolio building blocks can have an effect on cost, whereas some esoteric strategies may be too complex for some clients:
•
Traditional – portfolios use cash, equities, property and bonds. For less sophisticated clients, this may be a more cautious route which provides adequate asset diversification, mitigating concentration risk
•
Alternative – portfolios use non-traditional, uncorrelated assets, such as private equity, infrastructure and absolute return, in addition to traditional assets. In severe market conditions, this may provide additional diversification
Investment methodology There may be a preference for accessing markets through active or passive vehicles. Most DFMs will utilise a combination of both, though some may offer a wholly passive option. Considerations should include:
18
•
Cost – a drag on performance, so using cheaper passives may appeal. Active investing requires more resource for analysis and research but potentially provides higher returns
•
Risk – the use of passive funds (index trackers) removes stock specific risk. Active managers would argue that, factoring in tactical and strategic asset allocations, it gives them the opportunity to avoid underperforming stocks and markets
•
Adviser understanding – Advisers are required to articulate the appropriateness of any investment solution to their client. A complex solution may make this difficult
Management approach Most discretionary services will utilise collectives at some level, however this is more costly than investing in direct securities. Collectives have the benefit of a certain level of built in diversification.
•
Collectives – select managers to run specific mandates within the portfolio (multi-manager)
•
Direct stocks – select individual stocks and holdings to construct portfolios
There are pros and cons to both approaches, but the key in the due diligence exercise is to be in a position to manage the client’s expectations. Clients would not want to look at their portfolio and be surprised and perhaps worried about what the portfolio is containing, such as a portfolio of derivatives and alternatives instead of the expected recognisable shares and collectives. The research required, as outlined above, can best be summarised by the graphic below:
Risk targeted
Return focused
Traditional assets Asset type
Alternative (and traditional assets)
Investment solution
Investment method
Investment style Passive
Active (and blend)
Management approach Multi-manager/ Multi-asset
Direct securities
There are many variants of MPS solutions, and finding the ones that best fit with the adviser’s own philosophy and thinking is their challenge and responsibility. Get this right and there is a very good chance that the partners selected will be a good fit for both client and adviser. There is of course more to consider, including: Management structure Due diligence should uncover whether there is stability and consistency in management. Senior investment professionals at any firm should be able to exhibit a good record in the industry, and ideally the team behind them should be well established. The management team should be able to articulate their commitment to the adviser market and enable their firm to provide information and support that is attuned to the adviser.
19
Operations Discretionary management is a service based solution and the more service required, the more it costs. While due diligence should take into account cost and fees, and outliers from the norm should be a flag for further investigation, look at value for money rather than absolute cost.
Contractual Another important aspect of due diligence is to be clear about the contractual arrangements. This must detail each party’s responsibilities within the service, most importantly where the responsibility for suitability lies. Some discretionary managers will insist on this, arguing that they cannot construct a portfolio for a client without full knowledge of all the client’s circumstances. Other discretionary managers recognise that some advisers do not want to hand over all the responsibility to the discretionary manager and will defer responsibility for the suitability to the adviser. Whichever model, it is essential that the client is informed, in writing, where all responsibilities lie.
Risk management This can cover several areas, but what we would suggest are key areas for examination are:
• • • • •
Conflicts of interest Good governance around all areas of the firm, preferably with independent oversight Good strategy for growth Sensible pricing Sticking to investment methods and styles that suit the expertise and resource of the firm
There are of course many other aspects to a good due diligence process, some of which will not have been mentioned here, but the key is to answer all your own questions as well as putting yourself in the client’s shoes and answering all of theirs.
20
Due diligence – the pitfalls It is only a few years since many discretionary firms were genuinely baffled as to why they were getting requests for details of performance and/or costs from advisers. While things have moved on since then, we are still a long way from any kind of standardised data delivery. Gathering information is no longer the issue, it is more a case of being confident in the data received and on what basis it is provided. Approach with care would be the mantra. Just to help focus the mind on any due diligence undertaken here are some items that are perhaps not as straightforward as they first appear:
Category
Comment
Thinking
Performance for bespoke
By its nature will be indicative
Many discretionary managers are, unlike the fund world, more concerned about achieving client outcomes than being top of the pops in terms of performance. Always combine performance with a risk measure to get a complete picture
Performance for MPS
Should be more straightforward but there is not a common standard
May be gross of all or some charges. Be clear on what charges and fees are included and excluded from performance
Cost (MPS and bespoke)
Headline annual management fee All-inclusive fee (no additional may be all inclusive or may be one of charges such as transaction, many charges dividend collection, money transfer etc) is likely to be higher In many cases, annual fee is than unbundled charge structure. negotiable. Usually dependent on However, the higher the AUM, potential volume of assets the more insignificant additional fees become as a percentage of For bespoke portfolios, fees are portfolio value often tiered in that the more AUM the lower the cost becomes
Cost (MPS and bespoke)
Underlying funds
You would expect to pay a bit more for use of externally managed funds (paying for manager’s expertise). Internally run funds usually form the building blocks of portfolios. Some DFMs do not charge an explicit DFM fee, rather they take a cut of the AMC on the internally run funds. There are VAT savings using this structure. Ensure all costs are taken into account, especially if propositions make shortlists on the basis of zero DFM fee claims
21
Category
Comment
Thinking
Flexibility
Really only applies to bespoke. MPS is commoditised and features and benefits are usually standard for all clients
In theory all aspects of bespoke DFM have flexibility built in, but this will at some level have an additional cost. Flexibility of service may be variable, dependent on AUM
Expectations of structure
Most DFMs will claim expertise and potential use of most investment vehicles in portfolios
In reality, most portfolios whether bespoke or MPS will only use a certain amount of investment vehicles. More specialist or esoteric vehicles may only be considered for inclusion when requested. Important to be clear about what is possible and what is likely to form client portfolios, as sophistication and client understanding are important regulatory issues
Investment style
Most DFMs are reluctant to label themselves with any one approach
That being said, questioning will usually elicit what type of approach is being taken (risk targeted, risk focused, benchmark driven growth). With bespoke portfolios it should be possible to dictate the approach
Investment management
Who is running the money?
Investment managers in the discretionary world are not as well known as those in the fund world. However, most will have a track record at recognisable firms. Ask for and be comfortable with the main investment influencers
Financial standing (and reputation)
There is little in the way of financial strength analysis of DFMs (unless part of bigger financially strong groups)
AUM, growth of AUM, Group AUM (as opposed to just discretionary) will all help paint a picture of financial strength, potential longevity and resource
Ease of doing business
May tick all boxes but just not compatible with adviser business or awkward to deal with for client and adviser
Softer issues are very important. Defaqto always recommends a certain amount of engagement, electronic and face to face, before coming to a selection decision. If possible, involve paraplanners who are likely to be main points of contact
This table by no means represents all the due diligence hurdles to overcome, but does give a flavour of the kind of thinking and analysis that has to be undertaken to achieve robust due diligence.
22
The specialist Not all clients are the same, and there may be occasions where some investment specialisms are required. For instance: •
Ethical/socially responsible investing
•
Sharia
•
Alternative Investment Market (AIM) portfolios for Inheritance Tax (IHT) planning (utilising business property relief)
•
Taking on US clients
The first three in this list relate to investment approach and may require additional due diligence on the firm’s capabilities. The last requires specialist skills and knowledge.
Ethical A portfolio option within a managed portfolio service is likely to have been designed to appeal to those clients that feel they should do something, but do not necessarily have a specific cause in mind. These portfolios are likely to be a bit generic in nature and take a negative criteria approach ie avoiding as much as possible areas that are generally considered to be ‘unethical’ (eg arms, tobacco, alcohol, animal testing).
These solutions may well be termed ‘light green’. For those clients that are going to be more specific about their beliefs and requirements, a bespoke portfolio would be the route to take. Discussion with the investment manager would elicit what types of investment to accept and what to avoid. Adviser and discretionary manager ought to be mindful that the client may well know more about the subject than they do.
These portfolios may not avoid these investments altogether, but may set a limit as a percentage of turnover.
23
Sharia While many bespoke portfolio managers will be able to turn their hands to running an ethical portfolio, the rules on running a Sharia portfolio will have no different shades of acceptability at all. Sharia law is very specific and there is no room for compromises (although interpretation of Sharia Law can vary). There is no doubt that a specialist manager would be required to run a portfolio of this nature. Unsurprisingly, only two of the discretionary firms that we cover run Sharia portfolios.
AIM portfolios for business property relief Quite apart from requiring a specialist knowledge of, and the resources to research, the smaller company end of the market there are several rules to obey for holdings to qualify for business property relief. It is clear that a specialist knowledge of the market is required. When advisers undertake due diligence in this area, in addition to client specific questions, there are six fundamental areas that should be considered:
• The firm: history of success including record of business property relief qualifying failures • Research resource • Experience of the investment team in the relevant market • Performance history (in terms of following mandate rather than absolute as many have low
growth expectations in return for lower risk). This would include payment and level of income if this is important
• Diversification: sector, themes, number of stocks • Cost You may find our guide to Business Property Relief of interest, published in September 2014: defaqto.com/advisers/resources/publications-list/case-study-business-property-relief-an-essentialfinancial-planning-solution/
Knowledge is King With more information, advisers are able to make sounder and more confident decisions on which propositions are most suitable for their clients. Not only that, with certainty of information, it will give the adviser a feel for whether the investment manager holds similar investment beliefs and therefore whether the relationship is likely to be a strong one. Defaqto has been collecting such information on managed portfolio services for the last year or so and some of the information can be quite revealing. 24
Asset allocation What assets are held where has come into focus after Brexit, with real property assets being a particular issue presently. Pre-Brexit, it is interesting to note the asset class allocations for those most likely to be affected by the result (Property, UK Equity, European Equity (excl UK)) compared to post-Brexit levels. For the 390 or so managed portfolios that are available on platform, for which we have collected information, we see the following:
Pre-Brexit
Post-Brexit
Lowest
Highest
Average exposure
Lowest
Highest
Average exposure
Property
0%
20%
5%
0%
15%
4.5%
Cash
0%
54%
7%
0%
31%
8.5%
UK Equity
0%
63%
20%
0%
63%
19%
Of course, our sample of 390 portfolios will contain some that are perhaps ultra-cautious or ultraadventurous, so we would expect to see some very high or very low allocations as a matter of course. However, just from the point of view of knowledge and finding what is most suitable for the client, allocations beyond the norm should be identified. As an example, most investors will already be invested in property through their main residence or perhaps even work premises, so an additional 20% in a portfolio may be considered too much. On the flip side, some investors may be renting and have no exposure to property, so the 20% figure may seem less extreme.
Most of us in the industry exhibit some home bias. Familiarity may appeal to some investors, but not others, especially if at the expense of a balanced and well diversified portfolio. Without information like this, it is difficult to assess whether you are in tune with the investment managers and the risk appetite of the client.
Fees Sticking with portfolios available through platforms, Defaqto has collected information that shows published fees ranging from 0.2% up to 1%. How these fees will sit with clients will depend on adviser judgements of value for money. However, once you take into account other costs, such as those of underlying funds, we find the range varies from 0.31% up to 1.8%, and don’t forget you still have to add in the platform fee and adviser charges.
Although not explicit, the level of activity within portfolios will also affect the overall costs. We have found that portfolio turnover rates vary significantly. They range from 0% up to 133%. At either end of this scale, the right tactical moves may have been taken, but without this information it is difficult to make a sound judgement and get a feel for the investment manager’s approach to portfolio management.
Once in possession of all the information, only then will a sound value for money judgement be possible.
25
The portfolios Advisers will have different views on portfolio size. Some will argue that smaller is more flexible and it is easier to make quick short-term tactical changes. However, there are some 47 portfolios on platforms that we are aware of that have no investment in them at all. Not necessarily a bad thing, but good to know.
26
Any one of these pieces of information may or may not be game-changers in terms of selecting a proposition, but together they help build a clearer picture of the proposition as a whole, which can only help in the process of ‘getting it right first time’.
Pension freedoms Criteria related to managing retirement income have become increasingly important to advisers over the last year or so as they look to discretionary firms to provide sufficient investment choice and administrative capabilities to cater for clients investing post retirement pension monies. We have seen some innovative investment strategies employed by bespoke discretionary managers, designed specifically for pension drawdown, and these would need to be investigated and understood by both adviser and client. These can be assessed on an individual client basis. For their part, as demand for ‘natural income’ paying portfolios appears to be growing, we are seeing more portfolios being launched with income as a priority. Perhaps only a trickle of launches at the moment, with most ranges only offering one or two income portfolio options, usually at the cautious end of the risk scale, we would expect this choice to grow quite quickly. Management of income in retirement has become a key issue of due diligence for many advisers.Questions asked should elicit whether the DFM firm is able to provide the client with income when and how they want it. The key issue is cash management:
• Is there a central cash account into which income is paid, consolidated (from all tax wrappers) and then paid out?
• Is the dividend income earned ‘ring-fenced’ or could it be used to offset fees? In this era of low
income, fee deduction could have a significant impact on what is distributed to clients. Clients may prefer that all income is paid out with fees being deducted from, say, a capital account that maintains a minimum cash level
• Is the income earned also ring-fenced from all transactions that are going on? • In an environment where income is a priority, DFMs should be questioned on their interest rates on cash held. In our experience, very few even beat high street current account rates
• When is income paid out? Are there sufficient options for frequency of payment? Clients will obviously differ in their preferences, but monthly as an option is likely to be popular
• How do DFMs deal with the period of time post investment, but prior to the portfolio earning
any income? This is where some of the bespoke strategies come into their own. For MPS portfolios, advisers are likely to be involved in managing this period of time and ensuring the client has sufficient funds to tide them over the initial period
• Can the income be automatically paid direct to the client’s bank account? Is there an additional cost attached to this facility?
27
MPS on platform Regardless of distribution channel, the same questions should arise. It is important to note that most of the flexibility around cash management and provision of retirement income for portfolios held on an adviser platform, are provided by that platform. The DFM’s duties start and finish with ensuring they are running portfolios to mandate and earning the right level of income. That being said, the importance of this cash management functionality should mean that DFMs, and advisers for that matter, should be putting pressure on the platforms to up their game in this area. Pension investing is, for most, by far the
28
largest investment pot a client will own. Weak cash management facilities may grow quickly as a reason for switching platforms or not selecting them in the first place. We know that some DFMs are frustrated at the inadequate systems in place on some platforms, and an additional knock-on effect is that some DFMs may not make their propositions available on certain platforms. There is some patience being exercised here as there is a realisation that implementing any changes in platform can be a long and expensive process, but there are limits to this patience.
Service We would hope that the due diligence undertaken in the discretionary selection process will lead to partnering with the right discretionary managers to deliver the right client outcomes. It is of course likely that several firms will fit the bill. In order to provide some additional differentiation between propositions, Defaqto launched their first set of DFM Service Ratings at the beginning of the year. Although it is early days, and only a handful of DFMs qualified for a rating, part of the survey discovered what was most important to advisers. Of the advisers that used DFMs, 173 contributed to this part of the survey. The following table lists the different aspects of service that are usually associated with discretionary management and how important each aspect was to advisers in relation to each other, together with their ranking. The table also indicates which of the service aspects were not meeting adviser expectations. These aspects should demand specific attention when undertaking due diligence.
Importance ranking and satisfaction discipline
Meeting industry expectations
Quality of staff – investment
Investment managers or account Meets managers are able to respond to any investment queries with knowledge and conviction, accurately reflecting any current portfolio positions or market views. Able to support the adviser firm in promoting the service
Service
Flexibility in service to client and adviser eg client meetings (frequency, depth, location), reporting frequency, reporting structure, CGT management, legacy holding approach, access to investment managers
Meets
Quality of staff – administration
DFM staff are available and able to deal with a range of enquiries in a timely manner and bring enquiry to a satisfactory conclusion
Below
Ease of doing business
The ease of doing business with the DFM firm over all aspects of the relationship
Meets
Investment flexibility – range of options
For bespoke – confidence in investment managers to run a wide range of different investment portfolio types (eg risk targeted, income, ethical, cash plus). For MPS – sufficient range of portfolio options to appeal to client base
Below
1
2
3
4
5
Discipline description
29
Importance ranking and satisfaction discipline
Discipline description
Meeting industry expectations
Existing business administration
Report delivery, payment of income, issue of contract notes, CGT reporting
Below
Investment flexibility – range of assets
The range of assets used in portfolios (eg funds, individual securities, structured products) is sufficient to meet client needs
Exceeds
Online facilities
Availability of up to date portfolio information to adviser and/or client (eg valuations, transactions, market views, previous reports)
Below
Client on-boarding
Efficiency and ease of signing up new clients with cash to invest or those with existing holdings
Exceeds
Provider financial strength and resource
As indicated by growth in discretionary assets, group AUM, discretionary AUM. Confidence in firm to run a variety of portfolio types, with the resources to do so
Exceeds
Quality of literature
Clear, easy to understand literature and terms, which give adviser and client a fair representation of the service they should expect
Below
Remuneration
Adviser charging facilities are compatible with preferred method of fee remuneration
Exceeds
Accessibility
Availability of DFM service through third-party platforms and other tax wrappers (eg SIPP, offshore bond) is compatible with current ‘buy list’
Meets
Provider brand
Perception of brand quality. Additional confidence in certain brands. For example, based on reputation, size, visibility
Exceeds
6
7
8
9
10
11
12
13
14
While it should be noted that all service aspects scored quite highly, it is worthy of note that two of the top ranked service aspects relate to administration and fail to meet adviser expectations. It may be worth advisers considering asking for a service level agreement, particularly if a considerable amount of client assets could be placed with the DFM. Food for thought.
The platform dynamic The above satisfaction survey only relates to those advisers/clients outsourcing direct to DFMs. If accessing DFM through a platform, the majority of the service aspects are provided by the platform. That being said, there are many DFMs that still provide a good supporting service to advisers, even though individual clients are likely to be unknown to the DFM and should be investigated. Separate due diligence needs to be undertaken on platforms, taking into account the provision of investment choices and tax wrappers. 30
Learning objectives Having read this discretionary market update, you should be able to: •
Understand the direction the discretionary market is taking and be able to factor in potential future changes when monitoring existing solutions and selecting new solutions
•
Adjust your client recommendations and selection due diligence based on recent activity and trends in the market
•
Be clear about the different types of discretionary solutions on offer
•
Describe the different discretionary solutions, relating them to client needs and suitability and as a result make better and more robust selection decisions
•
Achieve some clarity on what the regulators expectations are in terms of due diligence
•
Understand that outsourcing changes the client/adviser dynamic. Rather than the adviser providing the solution and having to defend all investment decisions, both will be working together to find the best 3rd party solution
31
Test yourself for CPD In order to assess your knowledge following completion of this publication, why not work your way through the following questions? All the answers can be found within the content of this publication. 1
What type of discretionary solution has seen the most launches since RDR implementation? a. MPS direct b. MPS on a platform c. Bespoke
2
What type of discretionary solution saw the most launches prior to 2010, yet the least since then? a. MPS direct b. MPS on a platform c. Bespoke
3
4
5
Give two fundamental reasons why an adviser firm would outsource to a third-party discretionary manager?
According to the Financial Services Authority (now FCA), in their final guidance paper FG12/16, what would they consider as good practice for the structure of a CIP (Centralised Investment Proposition)?
From the same Final Guidance paper, name five of the seven criteria that the FSA (as was) would consider minimum due diligence for analysis of a CIP component.
List five further areas of analysis that may be considered as ‘deeper due diligence’.
6
What is the common factor to two of the top three most important service attributes according to advisers surveyed? 7
This case study is accredited by the CII/PFS and CISI for up to 60 minutes of structured continuing professional development (CPD).
32
Name
Date
Signature
CPD time recorded
Send us your feedback Your feedback is extremely important to us and we would be grateful if, after reading this publication, you would take a few minutes to complete a short survey. Your answers will be treated in the strictest confidence and the results of this will help the development of future publications. The survey can be accessed at www.snapsurveys.com/wh/s.asp?k=144610976149
33
Appendix
34
Provider
Product
Suitability responsible
Ethical option
Svce fee pa £250k inv %
Min investment £
Albert E Sharp
Bespoke Portfolio Service
ns
ns
ns
£-
Alpha Portfolio Management
Bespoke Portfolio Service – Charging Option 1
no
yes
1
£100,000.00
Alpha Portfolio Management
Bespoke Portfolio Service – Charging Option 2
no
yes
0.25
£100,000.00
Bordier & Cie (UK) PLC
Wealth Management Service
no
no
1.2
£250,000.00
Brewin Dolphin
Discretionary Service
no
yes
1
£150,000.00
Brooks Macdonald
Bespoke Portfolio Service – Option 1
no
yes
0.75
£200,000.00
Brooks Macdonald
Bespoke Portfolio Service – Option 2
no
yes
1
£200,000.00
Brown Shipley
Premium Portfolio Service – Fee plus commission
yes
yes
0.75
£250,000.00
Canaccord Genuity Wealth Management
Discretionary Portfolio Management
no
yes
0.75
£250,000.00
Cazenove Capital Management
Discretionary Service
no
yes
0.85
£200,000.00
Charles Stanley & Co Ltd
Bespoke Discretionary Management - Standard Fee
no
yes
0.85
£80,000.00
Church House Investment Management
Discretionary Management Service
yes
no
1
£250,000.00
City Asset Management
Bespoke Discretionary Management
no
yes
0.65
£150,000.00
Close Brothers Asset Management
Bespoke Portfolios Option 1 (Clean Fee)
no
yes
1 (at £1m)
£1,000,000.00
Close Brothers Asset Management
Bespoke Portfolios Option 2 (Fee + Dealing)
no
yes
0.75 (at £1m)
£1,000,000.00
Cornelian Asset Managers Ltd
Discretionary Investment Management Services
yes
yes
0.75 (at £500K)
£300,000.00
European Investment Management Ltd
Bespoke Discretionary Management
yes
yes
1
£100,000.00
Fieldings
Bespoke Discretionary Management – Option 1
ns
ns
ns
£-
Fieldings
Bespoke Discretionary Management – Option 2
ns
ns
ns
£-
GHC Capital Markets
Bespoke Portfolio Service (BPS)
yes
yes
0.75
£100,000.00
Groupe Financiere Hottinger & Co Ltd
Discretionary Fund Management
ns
ns
ns
£-
Hargreave Hale
Discretionary Investment Management
no
no
0.75
£-
Provider
Product
Suitability responsible
Ethical option
Svce fee pa £250k inv %
Min investment £
Hawksmoor Investment Management Limited
Bespoke Discretionary Portfolio Management Service
no
yes
0.75
£-
Investec Wealth & Investment Limited
Discretionary Fund Management Fee + Commission
no
yes
0.75
£150,000.00
Investec Wealth & Investment Limited
Discretionary Fund Management Fee Only
no
yes
1
£150,000.00
IPS Capital LLP
IPS Discretionary Investment Management Service
yes
yes
1 (at £500K)
£500,000.00
James Brearley & Sons
Portfolio Management Service-(1)Inclusive Bespoke
yes
yes
1
£50,000.00
James Brearley & Sons
Portfolio Management Srvc-(2) Transaction Bespoke
yes
yes
0.6
£50,000.00
James Hambro & Partners LLP
Bespoke Portfolio - Fee Only
yes
yes
1.15 (at £500K)
£500,000.00
James Hambro & Partners LLP
Bespoke Portfolio - Fee plus Commission
yes
yes
1 (at £500K)
£500,000.00
JM Finn & Co
Discretionary Management Service Fee & Commission
yes
no
0.75
£100,000.00
JM Finn & Co
Discretionary Management Service Fee only
yes
no
1.2
£100,000.00
King & Shaxson Capital Limited
Personal Discretionary Service
no
yes
0.65
£250,000.00
Kleinwort Benson
Bespoke Portfolio Service
no
yes
1 (at £5m)
£3,000,000.00
Kleinwort Benson
Discretionary Portfolio Service
no
yes
1
£250,000.00
LGT Vestra LLP
Discretionary Investment Management Services
yes
yes
0.75
£250,000.00
London and Capital
Discretionary Investment Management
yes
yes
1.25 (at £1m)
£1,000,000.00
McInroy & Wood
Discretionary Investment Management Service
yes
no
1
£-
MitonOptimal Portfolio Management (CI)
Bespoke Portfolio Service
no
yes
1
£250,000.00
Mole Valley Asset Management
Bespoke Discretionary Portfolios
yes
no
0.6
£15,240.00
Mountstone Partners Ltd
Bespoke Portfolio Management
yes
yes
1 (at £500K)
£500,000.00
Myddleton Croft Investment Managers
Bespoke Portfolio Service
no
yes
0.75
£60,000.00
OCM Asset Management
Discretionary Fund Management - Bespoke
yes
yes
0.49
£5,000.00
Pilling & Co Stockbrokers Ltd
Discretionary Management Service
ns
ns
ns
£-
Psigma Investment Management
Bespoke Portfolio
yes
no
1
£250,000.00
35
36
Provider
Product
Suitability responsible
Ethical option
Svce fee pa £250k inv %
Min investment £
Quartet Capital Partners LLP
Bespoke Discretionary Service
yes
yes
0.9
£200,000.00
Quilter Cheviot
Discretionary Investment Management – Option 1
yes
yes
0.75
£200,000.00
Quilter Cheviot
Discretionary Investment Management – Option 2
yes
yes
1
£200,000.00
Rathbone Investment Management
Individual Portfolio Service
yes
yes
1.2
£100,000.00
RC Brown Investment Management Plc
Bespoke Portfolio Service – Conventional Fee
no
yes
1.25
£15,000.00
RC Brown Investment Management Plc
Bespoke Portfolio Service – Performance Fee
no
yes
0.625
£15,000.00
Redmayne-Bentley
Bespoke Discretionary – Fee + Commission
yes
yes
0.5
£50,000.00
Redmayne-Bentley
Bespoke Discretionary – Fee only
yes
yes
0.95
£50,000.00
Rowan Dartington & Co Limited
RD Signature Bespoke Portfolio Service Fee + comm
no
yes
0
£100,000.00
Rowan Dartington & Co Limited
RD Signature Bespoke Portfolio Service Fee only
no
yes
0.75
£100,000.00
Ruffer LLP
Bespoke Discretionary Portfolio Management
ns
ns
ns
£-
S C Davies & Co
Bespoke Management Service
ns
ns
ns
£-
Sanlam Private Wealth
High Net Worth Service
no
yes
1
£250,000.00
Seven Investment Management
Discretionary Management Service
no
yes
0.25
£200,000.00
Smith & Williamson
Portfolio Investment Account - Option 1
yes
yes
1
£100,000.00
Smith & Williamson
Portfolio Investment Account - Option 2
yes
yes
0.75
£100,000.00
Standard Life Wealth
Bespoke Portfolio Management
yes
yes
0.975 (at £500K)
£500,000.00
TAM Asset Management
Premier Full Discretionary Service
no
yes
1
£100,000.00
Thesis Asset Management
Personal Investment Portfolio Service – (Fee only)
yes
yes
0.9
£150,000.00
Thomas Miller Investment Ltd
Discretionary Investment Management
yes
yes
1
£250,000.00
Tilney for Intermediaries
Investment Management Service
yes
yes
0.75
£200,000.00
Vertem Asset Management
Bespoke Portfolio Solution
yes
yes
1
£50,000.00
Walker Crips
Walker Crips Bespoke Portfolios
yes
yes
0.8
£100,000.00
Waverton Investment Management Ltd
Discretionary Management Services
yes
yes
1 (at £500K)
£500,000.00
Provider
Product
Suitability responsible
Ethical option
Svce fee pa £250k inv %
Min investment £
WHIreland
Bespoke Portfolio Service - Fee Only
yes
yes
1
£100,000.00
WHIreland
Bespoke Portfolio Service - Fee plus commission
yes
yes
0.5
£100,000.00
Whitechurch Securities Ltd
Prestige Investment Management Service
no
yes
0.45
£50,000.00
Provider
Product
Dist channel
Num of Ethical EMB portfolio option income options portfolio options
Svce fee Platform partners pa £250k inv %
Albert E Sharp
Model Portfolio Service Direct
direct
ns
ns
ns
ns
ns
Albert E Sharp
Model Portfolio Service Platform
platform
ns
ns
ns
ns
ns
Alpha Portfolio Management
Managed Portfolio Service – Collectives – Platform
platform
10
yes
2
0.4
Cofunds, Novia, Nucleus, Transact
Alpha Portfolio Management
Managed Portfolio Service - Collectives only
direct
12
yes
2
0.65
Cofunds, Novia, Nucleus, Transact
Alpha Portfolio Management
Managed Portfolio Service – Direct Equity + Collective
direct
8
no
2
0.8
none
Apollo Multi Asset Management
Athena Controlled Risk Discretionary – Platform
platform
10
no
1
0.51
7IM, Aegon, Ascentric, Aviva, Axa, Novia, Nucleus, Transact, Zurich
Arbuthnot Latham & Co Ltd
Collective Investment Services
direct
10
yes
1
1 (at £500K)
none
Arbuthnot Latham & Co Ltd
Direct Investment Services
direct
8
yes
1
1 (at £500K)
none
Beaufort Investment Management
Discretionary Portfolio Management – Platform
platform
42
yes
2
0.3
7IM, Axa, Standard Life, Transact
Bordier & Cie (UK) PLC
Bordier (UK) Managed Portfolio Service
direct
5
no
0
0.75
Ascentric, Aviva, Axa, Fusion, Novia, Nucleus, Praemium, Standard Life, Transact, Zurich
Bordier & Cie (UK) PLC
Platform Managed Portfolio Service
platform
5
no
0
0.3
Ascentric, Aviva, Axa, Fusion, Novia, Nucleus, Praemium, Standard Life, Transact, Zurich
Brewin Dolphin
Managed Portfolio Service
platform
5
no
1
0.3
Aegon, Ascentric, Aviva, Axa, Fusion, James Hay, Novia, Nucleus, Standard Life, Zurich
37
38
Provider
Product
Dist channel
Num of Ethical EMB portfolio option income options portfolio options
Svce fee Platform partners pa £250k inv %
Brooks Macdonald
Managed Portfolio Service
direct
10
no
6
0.75
Ascentric, Aviva, Axa, Fusion, Novia, Nucleus, Standard Life, Succession, Transact
Brooks Macdonald
Platform Managed Portfolio Service
platform
8
no
6
0.4
Ascentric, Aviva, Axa, Fusion, Novia, Nucleus, Standard Life, Succession, Transact
Brown Shipley
Platform Model Portfolio Service
platform
12
no
2
0.3
Ascentric, Novia, Standard Life, Transact
Canaccord Genuity Wealth Management
GPS Optimized Portfolio - Direct
direct
5
no
ns
0.8
Ascentric, Axa, Fusion, Novia, Nucleus, Transact
Canaccord Genuity Wealth Management
GPS Optimized Portfolio – Platform
platform
5
no
ns
0.5
Ascentric, Axa, Fusion, Novia, Nucleus, Transact
Canaccord Genuity Wealth Management
MPS (Managed Portfolio Service)
direct
7
no
1
0.75
Ascentric, Axa, Fusion, Novia, Nucleus, Transact
Canaccord Genuity Wealth Management
MPS (Managed Portfolio Service) – Platform
platform
7
no
1
0.5
Ascentric, Axa, Fusion, Novia, Nucleus, Transact
Cazenove Capital Management
Managed Portfolio Service – Platform
platform
6
no
1
0.3
Standard Life
Charles Stanley & Co Ltd
Collectives Portfolio Service
direct
12
no
4
0.75
Aegon, Ascentric, Aviva, Fusion, Novia, Nucleus, Standard Life, Transact, Zurich
Charles Stanley & Co Ltd
Collectives Portfolio Service – Platform
platform
12
no
4
0.3
Aegon, Ascentric, Aviva, Fusion, Novia, Nucleus, Standard Life, Transact, Zurich
Charles Stanley & Co Ltd
DFM Model Portfolio Service
direct
3
no
1
0.75
Fusion
Charles Stanley Pan Asset
PanASSET Model Portfolio
platform
6
no
ns
0.2
Aegon, Ascentric, Aviva, Novia, Nucleus, Standard Life, Transact, Zurich
Charles Stanley Pan Asset
PanDYNAMIC Model Portfolio
platform
7
no
1
0.2
Ascentric, Aviva, Novia, Nucleus, Standard Life, Transact
Church House Investment Management
Church House Advantage Managed Portfolio Service
direct
6
no
4
0.25
Parmenion
City Asset Management
Platform Based Model Portfolios
platform
6
no
1
0.25
Aviva, Axa, Novia, Transact
Clarion Investment Management Limited
Discretionary Investment Management
platform
13
no
ns
0.75
Axa, Raymond James
Close Brothers Asset Management
Discretionary Managed Services
direct
5
yes
2
1
none
Provider
Product
Dist channel
Num of Ethical EMB portfolio option income options portfolio options
Svce fee Platform partners pa £250k inv %
Close Brothers Asset Management
Managed Portfolio Service
direct
4
no
1
0.3
Ascentric, Novia, Nucleus, Standard Life
Close Brothers Asset Management
Managed Portfolio Service – Platform
platform
4
no
1
0.3
Ascentric, Novia, Nucleus, Standard Life
Cornelian Asset Managers Ltd
Managed Portfolio Service
direct
6
no
1
0.87
Novia
Cornelian Asset Managers Ltd
Managed Portfolio Service – Platform
platform
5
no
ns
0.3
Novia
EQ Investors
Absolute Return Portfolios
platform
1
no
0
0.35
Novia
EQ Investors
Positive Impact Portfolios
platform
7
yes
ns
0.35
Novia
European Investment Management Ltd
Model Portfolio Service – MOSAIC Platform
platform
5
no
ns
0.6
Nucleus
Fairstone Private Wealth Ltd
Managed Portfolio Service
direct
13
no
2
0.4
in-house platform
Fairstone Private Wealth Ltd
Managed Portfolio Service – Platform
platform
13
no
2
0.4
Aegon, Ascentric, Aviva, Cofunds, James Hay, Novia, Nucleus, Old Mutual Wealth, Standard Life, Transact, Zurich
GAM London Limited
Discretionary Fund Management
direct
5
no
0
0.7
7IM, Ascentric, Novia
GAM London Limited
Managed Portfolios Service – Platform
platform
5
no
0
0.25
7IM, Ascentric, Novia
GHC Capital Markets
Dynamic Core Satellite (DCS)
direct
6
no
ns
0.75
none
GHC Capital Markets
Optimised Portfolio Service (OPS)
direct
7
no
ns
0.75
none
Hawksmoor Investment Management Limited
The Model Portfolio Service
platform
6
no
1
0.3
Ascentric, Aviva, Novia, Standard Life, Transact
Heartwood Investment Management
Discretionary Portfolio Management
direct
8
yes
0
1 (at £1m)
none
Heartwood Investment Management
Platform Model Portfolios – Ascentric
platform
4
no
0
0.4
Ascentric, Fusion, Novia
Heartwood Investment Management
Platform Model Portfolios – Fusion and Novia
platform
4
no
2
0.3
Ascentric, Fusion, Novia
Investec Wealth & Investment Limited
Master Portfolio Service
direct
6
no
1
0.85
none
39
40
Provider
Product
Dist channel
Num of Ethical EMB portfolio option income options portfolio options
Svce fee Platform partners pa £250k inv %
IPS Capital LLP
IPS Managed Portfolio Service
platform
3
no
0
0.3
Ascentric, James Hay, Novia, Standard Life, Transact
James Brearley & Sons
Portfolio Management Service – (1) Inclusive Model
direct
7
yes
1
1
James Brearley & Sons
James Brearley & Sons
Portfolio Management Service – (2) Transaction Model
direct
7
yes
1
0.6
James Brearley & Sons
King & Shaxson Capital Limited
Platform Ethical Portfolios
platform
5
yes
1
0.5
Ascentric, Aviva, Novia, Nucleus, Succession, Transact
Kleinwort Benson
Managed Portfolio Strategies
platform
6
no
2
0.35
Ascentric, Aviva, Axa, Novia, Nucleus, Standard Life, Transact
LGT Vestra LLP
Model Portfolio Service
direct
6
no
1
0.25
7IM, Aegon, Alliance Trust,Ascentric, Aviva, Axa, Cofunds, Funds Network, James Hay, Novia, Nucleus, Old Mutual Wealth, Platform One, Praemium, Standard Life, Succession, Transact, Zurich
LGT Vestra LLP
Platform Model Portfolio Service
platform
6
no
1
0.25
7IM, Aegon, Alliance Trust, Ascentric, Aviva, Axa, Cofunds, Funds Network, James Hay, Novia, Nucleus, Old Mutual Wealth, Platform One, Praemium, Standard Life, Succession, Transact,Z urich
Liontrust Investment Solutions Ltd
Managed Portfolio Service – Platform
platform
22
no
6
0.3
Aegon, Aviva, Novia, Standard Life, Transact, Zurich
Liontrust Investment Solutions Ltd
Wealth Solutions Service
direct
27
no
6
0.32
none
London and Capital
Discretionary Managed Portfolios
platform
10
no
3
0.25
7IM, Aegon, Ascentric, Aviva, Novia, Nucleus, Standard Life, Transact, True Potential, Zurich
London and Capital
Global Model Portfolio Service
platform
5
no
0
1
7IM, Aegon, Ascentric, Aviva, Novia, Nucleus, Standard Life, Transact, True Potential, Zurich
Morningstar Investment Management Europe
Governed Portfolios (Aviva)
platform
5
no
1
0.15
Aviva
Provider
Product
Dist channel
Num of Ethical EMB portfolio option income options portfolio options
Svce fee Platform partners pa £250k inv %
Morningstar Investment Management Europe
Morningstar Managed Portfolios
platform
16
no
2
0.3
7IM, Aegon, Alliance Trust, Ascentric, Aviva, Cofunds, Funds Network, James Hay, Novia, Nucleus, Old Mutual Wealth, Standard Life, Transact, Zurich
Myddleton Croft Investment Managers
Model Portfolio Service – Platform
platform
8
no
0
0.6
Ascentric, Novia, Nucleus, True Potential
Nedbank Private Wealth
Discretionary Investment Management Service
direct
4
no
1
0.75 (at £500K)
none
Newscape Capital Group
Model Portfolio Service
platform
11
no
1
0.35
Ascentric, Aviva, Cofunds, Funds Network, Novia, Praemium, Succession, Transact
Novia Financial plc
Copia Capital Management
direct
10
no
0.3
Novia
OCM Asset Management
Discretionary Fund Management – Model
direct
4
no
0
0.35
Ascentric, Avalon, Aviva, Axa, Novia, Nucleus, Standard Life, Transact
OCM Asset Management
Discretionary Fund Management – Model – Platform
platform
4
no
0
0.35
Ascentric, Avalon, Aviva, Axa, Novia, Nucleus, Standard Life, Transact
Octopus Investments
Octopus Portfolio Manager (OPM) Direct
direct
10
no
0
0.65
7IM, Ascentric, Aviva, Axa, Fusion, Novia, Nucleus, Standard Life, Transact, Zurich
Octopus Investments
Octopus Portfolio Manager (OPM) Platform
platform
8
no
0
0
7IM, Ascentric, Aviva, Axa, Fusion, Novia, Nucleus, Standard Life, Transact, Zurich
Old Mutual Wealth
WealthSelect Managed Portfolio Service
direct
16
no
ns
0
Old Mutual Wealth
Old Mutual Wealth
WealthSelect Managed Portfolio Service – Platform
platform
16
no
ns
0
Old Mutual Wealth
Parallel Investment Management
Model Portfolio Service
platform
9
yes
2
0.3
Ascentric, Axa, Fusion, Standard Life
Parmenion Capital Partners LLP
Discretionary Management Service
direct
130
yes
10
0.3
Parmenion
Pilling & Co Stockbrokers Ltd
Pilling Ideal Portfolio
direct
ns
ns
ns
ns
ns
41
42
Provider
Product
Dist channel
Num of Ethical EMB portfolio option income options portfolio options
Svce fee Platform partners pa £250k inv %
Premier Asset Management
Premier Portfolio Management Service - Model
direct
11
no
3
1
Ascentric, James Hay, Novia
Premier Asset Management
Premier Portfolio Management Service – Platform
platform
11
no
3
0
Ascentric, James Hay, Novia
Price Bailey Financial Planning
Portfolio Management Service
direct
9
no
2
0.35
Praemium
Prospect Wealth Model Portfolio Management Service
direct
6
yes
0
0.75
none
Psigma Investment Management
Managed Portfolio Service
direct
6
no
2
0.5
Ascentric, Aviva,Funds Network, Fusion, Standard Life, Transact
Psigma Investment Management
Psigma Platform Portfolios
platform
5
no
2
0.35
Ascentric, Aviva, Funds Network, Fusion, Standard Life, Transact
Quilter Cheviot
Managed Portfolio Service
direct
11
no
3
0.85
Ascentric, Aviva, Fusion, Novia, Nucleus, Old Mutual Wealth, Standard Life
Quilter Cheviot
Managed Portfolio Service – Platform
platform
6
no
2
0.3
Ascentric, Aviva, Fusion, Novia, Nucleus, Old Mutual Wealth, Standard Life
Richmond House Investment Services Ltd
Discretionary Management Services
platform
7
no
1
0.5
Ascentric, Axa, Cofunds, James Hay, Standard Life, Transact
Rowan Dartington & Co Limited
RD Signature Collective Port Service – Platform
platform
7
yes
2
0.35
Ascentric, Aviva, Axa, Fusion, Novia, Nucleus, Standard Life, Transact
Rowan Dartington & Co Limited
RD Signature Collective Portfolio Service
direct
7
yes
2
0.35
Ascentric, Aviva, Axa, Fusion, Novia, Nucleus, Standard Life, Transact
Saltus Investment Managers
DFM-on-Wrap
platform
3
no
0
1
Ascentric, Axa, Novia, Nucleus, Praemium, Transact, True Potential
Saltus Investment Managers
Direct DFM
direct
3
no
0
1
in-house platform
Sanlam FOUR Investments UK Limited
Sanlam Model Portfolios
platform
12
yes
0
0.3
Ascentric, Novia, Nucleus, Sanlam, Succession, Transact
Sanlam Private Wealth
Managed Funds Portfolio Service
direct
11
yes
2
1
none
Sarasin & Partners
Sarasin Model Portfolios
platform
5
no
0
0.25
Aegon, Ascentric, Standard Life
Seven Investment Management
Model Portfolio Service
direct
6
no
1
0.25
7IM, Aegon, Ascentric, Aviva, Fusion, James Hay, Novia, Nucleus, Standard Life, Transact
Provider
Product
Dist channel
Num of Ethical EMB portfolio option income options portfolio options
Svce fee Platform partners pa £250k inv %
Seven Investment Management
Model Portfolio Service Platform
platform
6
no
1
0.25
7IM, Aegon, Ascentric, Aviva, Fusion, James Hay, Novia, Nucleus, Standard Life, Transact
Shipman Investment Managers
Managed Portfolio Service
platform
6
yes
1
0.6
Praemium
Smith & Williamson
Managed Portfolio Service (MPS)
platform
6
no
0
0.3
Ascentric, Aviva, James Hay, Novia, Transact
Standard Life Wealth
Managed Portfolio Service
direct
10
no
2
0.3
Standard Life
Strand Capital
Model Portfolio Service
direct
5
no
ns
0.7
Novia
TAM Asset Management
Focus Model Portfolio
direct
4
no
0
0.5
Aviva
TAM Asset Management
TAM Ethical Portfolio
direct
5
yes
0
0.65
Aviva
TAM Asset Management
TAM Ethical Portfolio Platform
platform
5
yes
0
0.4
Aviva
TAM Asset Management
TAM Sharia Portfolio
direct
5
no
0
1
Aviva
Tatton Investment Management
Tatton Strategic Managed Portfolio Service (SMPS)
platform
24
yes
6
0.2
Aegon, Amber, Aviva, Novia, Nucleus, Standard Life, Transact
Tavistock Wealth
Central Investment Proposition – Partner Profiles
platform
ns
ns
ns
ns
ns
Tavistock Wealth
Central Investment Proposition – Tavistock Profiles
platform
ns
ns
ns
ns
ns
Thesis Asset Management
Thesis Model Portfolio Service
direct
19
no
0
0.75
Ascentric, Aviva, Fusion, Novia, Nucleus, Standard Life, Transact
Thesis Asset Management
Thesis Model Portfolio Service – Platform
platform
19
no
0
0.4
Ascentric, Aviva, Fusion, Novia, Nucleus, Standard Life, Transact
Thomas Miller Investment Ltd
Model Portfolio Service
platform
6
no
0
0.3
Ascentric, Transact
Tilney for Intermediaries
Managed Portfolio Service – Direct
direct
9
no
4
0.5
James Hay, Standard Life
Tilney for Intermediaries
Managed Portfolio Service – Platform
platform
9
no
4
0.3
James Hay, Standard Life
Walker Crips
Actively Managed Portfolio Service – RTI
direct
10
no
5
0.8
Aviva, Novia, Transact
43
44
Provider
Product
Dist channel
Num of Ethical EMB portfolio option income options portfolio options
Svce fee Platform partners pa £250k inv %
Walker Crips
Actively Managed Portfolio Service – RTIP
platform
5
no
ns
0.3
Aviva, Novia, Transact
Walker Crips
Alpha:r2
direct
8
yes
4
0.7
Aviva, Novia
Walker Crips
Alpha:r2 Platform
platform
8
yes
4
0.3
Aviva, Novia
Waverton Investment Management Ltd
Model Portfolios based on Platform
platform
6
no
0
0.4
7IM, Alliance Trust, Ascentric, Aviva, Axa, Fusion, Novia, Nucleus, Standard Life, Transact
Wellian Investment Solutions
Investment Solutions Portfolio – Model
direct
9
yes
2
0.75
7IM, Ascentric, Aviva, Axa, Novia, Nucleus, Standard Life, Transact, True Potential, Wealthtime
Wellian Investment Solutions
Investment Solutions Portfolio – Platform
platform
9
yes
3
0.35
7IM, Ascentric, Aviva, Axa, Novia, Nucleus, Standard Life, Transact, True Potential, Wealthtime
Whitechurch Securities Ltd
Portfolio Management Service – Direct
direct
9
yes
0
0.75
Axa, Novia, Standard Life, Transact
Whitechurch Securities Ltd
Portfolio Management Service – Platform
platform
4
yes
2
0.5
Axa, Novia, Standard Life, Transact
About Defaqto Defaqto is a financial information business, helping financial institutions and consumers make better informed decisions. Our independent fund and product information helps banks, insurers and fund managers with designing and promoting their propositions. We analyse more than 30,000 financial products in the UK. These products change on a daily basis, and our customers need help with keeping track of this. We have been doing this for over 20 years, and we have 60 analysts spending 400 hours a day monitoring the market. They ensure that the information we provide is accurate and up to date. Our experts have done all the hard work so that financial institutions and consumers can make better informed decisions.
Defaqto Engage: benefit from an end to end investment solution Adviser software Engage now offers compliant risk profiling and fund selection in addition to the integrated and independent product, fund and platform data. Define and document your client’s investment risk profiles by agreeing their attitude to risk, required return and capacity for loss. Then select suitable funds for your clients by: •
Using Defaqto Risk Mappings and choosing a fund from a range of risk-rated risk-bound multi-asset solutions
•
Selecting single-asset funds to meet Defaqto target asset allocations
•
Building your own fund portfolios to match investment strategies at firm or individual level
For more information, or to arrange a free trial, visit defaqto.com/advisers/solutions/engage
46
Panel support We provide a one stop shop solution to support advisory businesses’ panel construction and maintenance requirements – based on our uniquely large and broad base of in-house knowledge and expertise and market-leading data (supported by Engage). We help strengthen your client adviser proposition by creating a panel to meet your business requirements (no matter how niche) and help you manage regulatory risk through developing repeatable processes to maximise your control over the advice process. Our approach also creates cost and time savings by enabling efficient distribution of your panel across your business – via Engage – giving advisers a solution they can use with clients easily and quickly. For more information visit defaqto.com/advisers/ solutions/panel-support/
You know your clients. And we know investing. Available only through advisers like you, Morningstar® Managed Portfolios are designed, built and monitored by our experienced investment team. We offer a range of passive, active, real return and income portfolios with no minimum investment levels to help you meet your clients’ individual goals. All portfolios are built for the long term and managed with a keen eye on risk. TM
Our managed portfolio services can help enhance your investment offerings, strengthen client relationships and streamline your business. Together, we bring your clients the best of both worlds: A financial plan you’ve developed specifically for their needs that includes all of the advantages of professional portfolio management. We’ll allocate the assets, so you can spend more time with your clients. Get a free guide on how a managed portfolio service can benefit your practice.
©2016 Morningstar. All Rights Reserved. Morningstar Investment Management Europe is the entity providing the discretionary management services and is authorised and regulated by the Financial Conduct Authority. Morningstar Managed Portfolios are intended for citizens or legal residents of the United Kingdom. These portfolios can only be made available through the use of an investment adviser appropriately authorised and regulated by the Financial Conduct Authority.
Advisor Industry Insights From Morningstar
Five Ways Recommending Discretionary Investment Management Can Benefit Your Practice
For Investment Adviser Use Only
Get the free guide global.morningstar.com/fiveways Questions? Call 020 3107 2930
Please contact us on 0808 1000 804 defaqto.com/advisers © Defaqto Limited 2016. All rights reserved. No part of this publication may be reprinted, reproduced or used in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system without the express written permission of the publisher. The publisher has taken all reasonable measures to ensure the accuracy of the information and ratings in this document and cannot accept responsibility or liability for errors or omissions from any information given and for any consequences arising.
