Increased regulation has meant financial advisers have been forced to outsource various aspects of their business to cut costs, but IFAs are not prepared to lose business to poaching third-parties.
Fund management firm Liontrust surveyed 100 UK financial advisers and found 91% said they are comfortable working with an investment partner with an asset management arm, but this falls to only 53% for those with an advice arm.
A quarter (27%) of advisers are worried about third-party investment managers poaching their clients.
Some 91% of advisers said value for money is important when selecting an outsourced investment partner. (More details: what is convergent outsourcing?)
The most popular reason for value for money is the best return for the best price, which is cited by 73% of respondents.
This is followed by ‘excellent administration’ (60%), ‘superior service’ (50%) and ‘good quality reporting’ (42%) in delivering value for money.
Price
Of those questioned, 41% said they believe they pay too much for the returns generated by their investment partners.
But cheap is not best, as 91% of advisers say they are willing to pay more for consistent performance and 74% add that they are willing to pay more for better service which goes beyond performance.
Two-thirds of advisers (63%) will dismiss an outsourced partner for excessive costs and a similar number will do the same should the firm deliver a poor service (55%).
According to the research, 43% of advisers do not believe investment partners are transparent enough when it comes to fees and charges.
John Husselbee, head of multi-asset at Liontrust, said: “What is clear from this research is that transparency, value for money and suitability are of prime importance to advisers in ensuring a successful outsourced investment partnership.
“The onus is on investment managers to demonstrate how we can deliver added value to advisers and their clients and how we can help advisers with their challenges such as suitability.
“It is not surprising that the best return for the best price is the most important factor in determining whether advisers and their clients are actually getting value for money.”
Transparency
Advisers also want greater transparency from their outsourced managers. According to the research, 43% of advisers do not believe investment partners are transparent enough when it comes to fees and charges.
While, 80% and 78% of advisers respectively said it is their responsibility to ensure the suitability of the funds and portfolios they offer on an initial and ongoing basis, 36% admit they are finding this challenging.
Of the advisers questioned for the research, they use outsourced investment solutions for an average of 51% of their client base.
