Its research found almost two-thirds (64%) of advisers outsourced investment management to discretionary fund managers (DFMs). Around 53% of the advisers who outsourced used multi-asset funds and multi-manager/funds of funds to make their clients’ investment choices.
Meanwhile, more than a third (36%) of IFAs used platform model portfolios, with a small minority – just 2.2% – relying on robo-advisers.
The study found that on average advisers outsourced 41.4% of asset under management in 2015, which rose marginally this year to 41.7%.
Mifid II
The main reason advisers are increasingly outsourcing investment management, said Cerulli, is the potential to share the cost of compliance arising from new regulations such as Mifid II.
The firm predicts that increased transaction reporting, investment research rules and disclosure of of best execution are expected to generate both one-off and ongoing costs which are unlikely to be passed on to clients.
“Cerulli believes it is unlikely that the additional costs incurred by the regulation could easily be passed onto to clients. This adds to the profit-margin pressure asset managers globally are coming under.
“Cerulli expects that MifId II will further reshape the relationship between distributors and fund manufacturers in the advisory channel,” read the firm’s report entitled Opting for Discretion in the Face of Regulation.
Barbara Wall, managing director of Cerulli Associates Europe, said IFAs expect assets under management which are managed by a third party to climb to 45.9% in 2017.
“Following the Retail Distribution Review, merger and acquisition activity in the financial advice and wealth management market increased exponentially.
“It is now slowing, revealing an industry divided between large, multiservice advisor and wealth management companies and small, traditional, independent advisors,” she said.
Wall added that “smaller players are more likely to have to outsource investment allocation”.
Fees
Wall said the average management fees for using outsourced services ranged between 86.8 basis points for multi-manager/funds of funds to 63.2bps for platforms’ model portfolios.
Model portfolio fees amounted to about 0.35% compared to the full management service of 1%.
