Do investment partnerships work for advisers? | What we think | Liontrust Asset Management PLC

Liontrust Adviser Research Report

Do investment partnerships work for advisers?

Outsourcing investment management has become an increasingly central part of the financial advice market over the past few years. The benefits for advisers of outsourcing have been extensively discussed and promoted but how successful are these relationships in reality?

This is a crucial question to answer because of the extent to which advisers are handing over their clients’ investments to third party managers and the degree to which the average adviser’s client base is using outsourced solutions.

According to our research, of those advisers using outsourced investment partners, they do so for an average of 51% of their client base. What makes an investment manager attractive to advisers? Are advisers and their clients happy with these relationships and the service they are receiving? Are they getting what they consider to be value for money? What can be improved by the outsourced investment managers?

Liontrust wanted to find out the answers to these and other questions, with the aim of discovering how relationships between advisers and their investment partners can be improved, for the benefit of both parties and, in particular, clients.

A few key themes and requirements emerge through the answers to these questions from advisers. These are:

  • the importance of investment partners providing transparency and a robust process;
  • the need for greater value for money from third-party managers;
  • the fact that cost is just one of a number of elements that determines value for money;
  • the willingness of advisers to pay more for performance and good quality service;
  • the challenge of assessing the suitability of funds and portfolios for clients.

One of the advisers said: “It needs to be the right balance between cost, performance and service – you cannot expect everything. It is not reasonable to expect the cheapest investment to have the best service.

“What advisers need is consistency across all aspects. We want the outsourced manager to consistently be above average – that is the golden ticket. Being the best at everything is not possible.”

Another adviser said: “The key is performance and transparency. When times are good, naturally it is value for money – but when times are not so good you need greater transparency and that is the issue we face on occasion.”

The research shows that wealth is the main driver for the segmentation of advisers’ client bases. As the wealth of clients grows, they move from multi-asset funds to model and managed portfolio services and then finally on to personalised DFM services.

Outsourcing investment management is clearly successful because of the longevity of these relationships: 42% of respondents say they have used third-party managers for eight years or more.

The research also shows, however, that there is more for investment managers to do to meet the expectations of advisers and their clients.

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Please remember that past performance is not a guide to future performance and the value of an investment and any income generated from them can fall as well as rise and is not guaranteed, therefore you may not get back the amount originally invested and potentially risk total loss of capital. 

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