Across the financial advice sector, a growing number of adviser firms are exploring discretionary permissions as they look to take greater control of their investment propositions.
The motivations are understandable. Firms aim to support better client outcomes, make decisions more efficiently and deliver a more integrated relationship between financial planning and investment management. A well-structured discretionary model may enable advisers to respond more efficiently to changing market conditions while offering clients a more cohesive service.
However, with greater control comes greater responsibility.
At Blacktower Financial Management, we have long believed that strong governance, disciplined investment processes and clear oversight are essential in delivering good client outcomes. For firms considering discretionary permissions, the key is to approach the decision strategically and to understand the operational and regulatory implications involved.
One of the most common misconceptions is that gaining discretionary permissions means a firm must build and manage every element of the investment process internally. In reality, this does not need to be the case.
Control and collaboration can coexist
Some of the most effective discretionary propositions combine control with collaboration.
Firms may retain ownership of their investment philosophy, client proposition and strategic direction while partnering with specialist providers that deliver the operational infrastructure behind the scenes. This can include portfolio management systems, research capabilities, governance frameworks and reporting tools.
Delegation in this context is not an abdication of responsibility. Rather, it allows firms to maintain oversight of their discretionary service while accessing the infrastructure required to deliver it effectively and efficiently. Firms should ensure that any delegation arrangements comply with regulatory outsourcing and oversight requirements, recognising that the authorised firm retains ultimate responsibility for the discretionary service.
This balance is becoming increasingly important as regulatory expectations across the advice profession continue to rise.
Why the discussion matters now
Regulatory scrutiny across financial services has intensified in recent years, and adviser firms are understandably cautious about implementing discretionary models without the appropriate governance and oversight structures in place.
Many firms aspire to operate with the same level of discipline and risk management that institutional investors have relied upon for decades. Large pension schemes and foundations, for example, have traditionally worked with outsourced chief investment officer (OCIO) structures to access professional investment governance and operational capabilities.
Historically, these types of resources were only available to large institutions with significant scale. Today, advances in technology and the growth of modular investment services mean adviser firms can access elements of similar operational capabilities more efficiently.
This creates an opportunity for firms to focus on what they do best — building relationships with clients and delivering high-quality financial planning — while leveraging specialist partners for elements of the investment process.
Why firms are exploring discretionary models
In conversations with adviser firms across the UK and internationally, several consistent themes tend to emerge when discussing discretionary permissions.
One is efficiency. A discretionary model allows portfolios to be adjusted more quickly without requiring individual client approval for every transaction. This can improve responsiveness to market developments and streamline portfolio management.
Another is integration. Many firms want a closer connection between financial planning and investment management so that portfolio decisions are aligned with clients’ long-term objectives.
There is also the question of brand ownership. Some firms believe that a discretionary model enables them to present a fully integrated investment proposition under their own name and philosophy.
Finally, there are commercial considerations. By bringing elements of investment management into their own proposition, firms may capture a greater share of the value chain within client relationships.
While these motivations are understandable, building a fully in-house discretionary capability can be demanding. It requires investment in people, systems, governance, compliance oversight and portfolio management infrastructure; all areas where the regulatory bar continues to rise.
For many firms, a hybrid approach is therefore emerging as the most practical route.
Building around your strengths
Rather than attempting to build every capability internally, adviser firms should start by identifying where they genuinely add value.
A useful framework for this is to consider four dimensions of the business:
- People – the expertise and insight within the advisory team
- Philosophy – the core investment beliefs that shape decision-making
- Process – the research and portfolio construction methodology
- Performance – how outcomes are monitored and communicated to clients
By mapping these strengths, firms can create a clear narrative around their investment proposition. At the same time, they can identify which elements of the process might benefit from specialist support without diluting the firm’s identity.
A partnership-led future
In my view, the future of discretionary services within the advice profession will increasingly be shaped by collaboration.
Adviser firms want to retain independence, control and the ability to differentiate their client propositions. At the same time, they recognise the need for institutional-quality infrastructure, governance and technology to support discretionary investment management.
By combining entrepreneurial advisory expertise with the right external partners, firms can achieve both.
At Blacktower, we have seen first-hand how collaboration, disciplined governance and a clear investment philosophy can help advice businesses evolve their propositions while maintaining the agility that defines successful advisory firms.
Discretionary permissions can be a powerful tool for firms looking to develop their investment proposition.. But success rarely comes from attempting to do everything alone.
Instead, firms that understand where they add the most value, build partnerships that complement their strengths, and create clear, well-governed investment propositions are likely to be the most resilient over time.
This article reflects the personal views of the author and is intended for general industry discussion. It does not constitute investment advice. Any firm considering discretionary permissions should undertake detailed regulatory, operational, and risk assessments to ensure the model is suitable for their business and their clients.
John Westwood (pictured) is Group Chairman at Blacktower Financial Management
