Almost three years since the implementation of the Retail Distribution Review, the adviser firms which have successfully navigated the biggest regulatory reform in recent history are beginning to emerge.
One of the biggest changes witnessed in the post-RDR world has been the number of advisers who either have – or are planning to – outsource some of their entire investment proposition.
CoreData’s latest findings on the appetite for advisers to outsource their investment proposition showed almost 43% of advisers expected to outsource some or all of their investment responsibilities.
The change has made advisers re-assess the added value they provide clients. They have begun to realise client service and management should be their strength rather than investment selection.
Outsourcing investment to a third-party began moving into mainstream almost 10 years ago as the impact of a prolonged bear market, split-cap crisis and the technology bubble showed many advisers investment selection was not the simple task many thought it was. Most importantly for UK advisers, the demise of with-profits products led to a search for similar one-stop shop solutions.
Skip forward a decade; the global financial crisis coupled with the implementation of regulatory change through the RDR heavily bolsters the case for outsourcing to the likes of Discretionary Fund Managers.
CoreData’s DFM report outlines key discretionary manager considerations such as investment philosophy and their propositions as businesses.
Tools and metrics DFMs use to identify strategy are highlighted and current asset allocation splits and attitudes towards different asset classes are also analysed.
In addition to understanding manager selection, we explore how DFMs prefer to interact with asset managers and how they would like to receive information.
The aim is to give asset managers a better understanding of how to approach these asset influencers.
The impact of RDR on advisers, both in terms of time and regulatory pressures, is highlighted in CoreData’s UK Adviser Efficiency Report. This found financial advisers in the UK spend nearly double the amount of time on both general administration and compliance tasks than their international peers. In total, UK advisers spend an hour a day, or 263 hours a year, on such work.
This is further supported by the CoreData Adviser Fees and Business Models report 2015, which shows advisers only spend 15% of their time managing existing client investments. More importantly, only 10.9% of advisers view managing existing client investments as their most important task.
Advisers no longer have the time to trawl through thousands of funds to find the right investment for their clients. This time restriction has also led to the rise of risk-rated and risk-targeted funds, which have become prominent instruments offered by the majority of asset managers in the UK.
The number of DFM providers has also grown in the past few years as has the range of services they offer, from bespoke offerings to a managed portfolio service and even unitised discretionary management.
DFMs are now firmly at the epicentre of fund selection and it is essential for asset managers to understand how they operate and what makes them choose or eliminate a manager from their selection process.
However, when advisers were asked whether the RDR had a positive or negative impact on different industry players, the response for DFMs was mixed with many highlighting the increased pressures of cost and transparency as well as the growing number of competitors in the market.
The impact of clean share classes has clearly had an impact on DFMs and shone a spotlight firmly on the fees they charge. Only one in five advisers (20.3%) believes the RDR had a positive impact on DFMs.