Centralised Investment Propositions
Centralised investment propositions (CIPs) take various forms, including distributor-influenced funds, discretionary investment management (in-house or outsourced) and ‘portfolio advice services’, a term the FSA uses to encompass model portfolios all of which are easily manageable on the Novia platform.
In light of the recent Retail Distribution Review (RDR), many firms are changing their business model and choosing to offer a centralised investment proposition.
According to various sources over 60 per cent of the market is now in a model portfolio of some sort and a growing proportion are going into models managed by DFMs. Novia is the market leader in the number of DFMs offered – currently 42 firms - and the functionality to support the management of the portfolios are a core component of our proposition. Using a DFM via Novia has many tangible benefits, including:
- Novia pay the DFM directly and not through the adviser, this type of structure delivers benefits in terms of VAT payable and removes the adviser from administering this.
- DFM’s charges are remunerated transparently via the Cash Facility
- Access to DFM services are usually available at a much lower cost than a firm may get when going direct to the DFM
- In most cases we can remove the often prohibitive fund manager minimum investment levels that could stop clients accessing preferred funds.
- System benefits - streamlined bulk rebalancing and switching processes, automatically aligning all clients to the model concerned, thereby reducing risk to an adviser.
- Adviser Control – As Novia has custody of the assets the adviser can simply change the DFM if the one chosen fails to perform. This is completely at odds with a fund of fund solution where the adviser is stuck with the in-house manager, whatever the performance.
- Tools – we offer a comprehensive suite of tools to assist a DFM or adviser firm in dealing with model portfolios, such as; Model Portfolio Manager, Model Portfolio Evaluator, and Portfolio Performance Review.
More information on our DFM offering including a list of the DFMs we currently work with is available on our website on the Discretionary Managers page.
Join us at Unique Boutiques in January
I’m pleased to say that we’ll be attending a number of conferences around the country organised by Unique Boutiques in January – featuring guest speakers from Cavendish, Pictet, Renaissance, SVM and Rathbones. We’ll be at the Harrogate, London and Birmingham events and we’d be delighted to speak to any Novia users and to see anyone interested in learning more about the platform - so do please come along if you can, for what promises to be a highly informative and enjoyable day. For more details and to register to attend please click here: http://www.uniqueboutiques.co.uk/
Which DM should I use – and how do I choose?
I wrote here the other day about the fact that we’ve added lots of new Discretionary Managers (DMs) to the platform recently – and how using a DM can present a number of benefits to both adviser and client. There’s certainly a lot of choice out there (and plenty via Novia!) and a number of advisers are now turning to the question ‘which DM should I use – and how do I choose which one to go with?’ Nowadays, a lot of advisers are experienced with choosing platforms and the due diligence process involved with that important decision but there seems to be less clarity, and assistance, when it comes to choosing a DM. This is an increasingly important part of many an adviser’s proposition, so I thought it might be useful to look at some of the factors that should be taken into consideration.
The DM itself
As an adviser, it is incredibly important to choose a DM whose proposition can run smoothly alongside your own. Paramount to this being achieved is the way that a DM views the adviser-client relationship - do they understand the way you work and appreciate the relationship you have with your clients? Discussions with the DM will help to establish where they stand on this and help you decide whether you should work with them. Will they provide you with the resources you need to communicate with clients, how often will you and your clients receive updates and in what format?
The past performance of a manager and their portfolios will also clearly be a crucial factor. How have they performed over an extended period (and indeed do they have an extended period of performance data available?) – in both rising and falling markets?
Does the firm have a good reputation and how experienced are the managers? Heritage, brand and market position may all influence your thinking about different DMs. Discussions with the manager and research into the firm’s background should help you to gauge whether you feel comfortable outsourcing to the DM in question.
Investment Options
Advisers will need to ensure that the range of investment options available through a DM, or possibly a number of DMs, satisfies the different types of client they service. One DM’s offering may very well suit a number of your clients whilst not catering to the needs of others. Through Novia, advisers can sign terms with a number of DMs who can be used in conjunction with each other to help service the widest range of clients possible. On the other hand you may find a DM proposition that does the job in itself. The investment options offered by DMs through Novia vary significantly, ranging from standardised risk rated, model portfolios through to a bespoke offering tailored to the individual client requirements, and sometimes something in between, such as customised model portfolios.
Other important factors include whether the DM’s own investment style and processes sit with the adviser’s philosophy. Whether the DM employs a top down or bottom up approach to investment management, favours passive or actively managed investments and the quality of their research resource should all be considered. Whilst some DMs will focus on picking stocks of individual companies they think are particularly strong, others will focus on sectors they favour and pick a suitable ETF to cover it. I’d advise doing further investigative work into the DM you are considering and discuss any finer points with the manager themselves to get a complete feel for their proposition.
Charges
Inherent in all provider selection choices will be a close scrutiny of the costs involved and whether they offer the desired value to the client. Advisers can now access expert discretionary management through a platform at a reduced cost due to the administrative efficiencies that are generated. However, each DM service is different and the costs will vary accordingly.
DMs will tend to levy an annual charge for the asset allocation/portfolio management service they provide. Decisions will include whether to opt for a strategic asset allocation driven manager who will pick longer term strategies that allow little adjustment or whether you choose a DM whose tactically managed portfolios will allow them to react swiftly to short term changes in the market but may come at a premium. Hidden costs where portfolios are changed often may have an impact that isn’t always clear. Also keep an eye out for VAT – some DM charges will include VAT whilst others will still need to add this on.
The DM charge is of course on top of the underlying fund TERs and these will depend on the DMs own investment strategy. Some DMs will favour passive investments such as index tracking ETFs whilst at the other end of the spectrum a number of DMs will rely on actively managed funds, with TERs reflecting the level of manager involvement. A large proportion of the DMs available through Novia combine the two approaches to varying degrees and an adviser must decide where they sit on the active/passive debate and the impact this has on overall TER.
Discretionary management through a platform means that DMs are increasingly accessible and available at a lower cost than ever. A platform facilitates the administrative efficiencies that make life easier for a DM and help to drive down costs. Novia helps to keep costs down further by levying no transaction, switch or rebalancing charges of our own. Consequently, a DM can easily and quickly make changes to a client’s portfolio without incurring any extra charge.
Whichever approach you settle for it is important to confirm with the DM all of the charges that will be incurred over the life of the investment strategy. Confirmation of underlying fund TERs, the DM annual charge and any platform charge will help to piece together an overall client cost that can be used to compare mangers. As I say, this is now increasingly competitive.
Finally...
Advisers can access over 30 discretionary managers via the Novia platform – which we reckon is one of the broadest ranges available in the market. It gives Novia advisers the sort of choice needed to get the right outsourced management to suit both the adviser’s philosophy and what they need for their clients. The model portfolio functionality we offer also means you’ve got the flexibility – to change and use different portfolios as required. Hopefully you’ve got somewhere to start from when choosing a DM but ultimately conducting your own research and engaging with the DMs yourself is the only way to ensure you put in place the right investment proposition for your clients.
Lots more DMs available through Novia – so what’s the benefit of using them?
We’ve recently added a number of new Discretionary Managers (DMs) to the platform – we’ve got over 30 now, which I think is a really healthy number and puts us in a good place to ensure advisers can access what they need. Over the last few weeks alone the following DMs have joined the Novia platform:
- European Wealth
- Ashcourt Rowan
- Apollo
- Berry
- City Asset Management
- Henderson Rowe
- Xcap Securities
The job of a platform is to offer an extensive choice of DMs to suit a range of needs – and the technological functionality and investment range to make it an efficient and worthwhile proposition for both high and low value investors. So what are the key benefits of using a DM via a platform? Well, here’s a few I’ve come up with:
De-risking an adviser’s business
Using a DM allows an adviser to focus on the on-going relationship with a client and reporting, whilst an investment expert with suitable research resource manages their portfolio. So the client gets the best possible investment management and advisers have the time to manage their needs where they can best add value. It removes much of the compliance risk, and responsibility for performance, that advisers face.
Providing a consistent investment proposition for both high and low value clients
Using a DM allows an adviser to provide a robust and consistent investment proposition to their clients and helps to deliver TCF – consistent treatment and financial products that behave as clients are led to believe.
Efficiency, driving down costs and maintaining profitability with varied clients
Increasingly competitive DM charges, online processing and reporting and using technology such as model portfolios via a platform allows an adviser to use DMs profitably and effectively for different value clients in a post RDR world. Model portfolio functionality means quick and easy access to DMs - clients can be setup online in a short space of time without loads of paperwork and control of the assets stays with the adviser.
Many models now have investment management charges of just 25-50 bps. The cost advantage is further enhanced by a reduction in VAT - DM services are VATable whereas platform charges are not. Using passive investments such as tracker funds or ETFs means DM managed models can be very low cost. Combining low cost discretionary management, low cost passive investments and efficient online processing means low value clients can remain profitable for advisers, even for portfolios below £100k – where for many advisers they become unprofitable.
Simply put, the business model of using a DM via platform works – it’s good for both adviser and client. By using platform technology and expert third party investment management, advisers can deliver a consistent, de-risked investment proposition that is efficient, cost effective and profitable even for low value clients. So I suppose now all you need to know is how you go about choosing the DMs that will match your clients’ needs. Picking the right DM from the wide array on offer can often seem like a daunting task and where do you start? I’ll look to cover this shortly so watch this space.
Further details on Novia’s DM offering can be found here