Independent financial advisors (IFAs) in the United Kingdom will outsource the investment management of a larger share of assets in 2017, with regulation being one of the key drivers of the growth, according to the latest issue of The Cerulli Edge – Europe Edition.
Research conducted by global analytics firm Cerulli Associates, in partnership with Investment Week and Professional Adviser, indicates the appetite for outsourcing is growing among IFAs. Those surveyed by Cerulli outsourced the investment management of, on average, 41.4% of assets under administration in 2015. For this year the percentage rose to 41.7%.
“Most interestingly, however, the IFAs expect the figure to climb to 45.9% in 2017,” says Barbara Wall, managing director of Cerulli Associates Europe. “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. The smaller players are more likely to have to outsource investment allocation.”
One of the key attractions of outsourcing from a client perspective is the potential to share the cost of change arising from new regulations.
Almost two-thirds (64.4%) of the IFAs surveyed outsourced to discretionary fund managers, followed by multi-asset funds and multi-manager/funds of funds, each of which were used by 53.3% of the advisors. More than one-third of IFAs (35.6%) outsourced to platforms’ model portfolios, with only 2.2% using robo-advisors.
“Our analysis of the average management fees for outsourced investment services found that they range from 86.8 basis points (bps) for multi-manager/funds of funds to 63.2bps for platforms’ model portfolios,” says Wall.
The 3rd Quarter issue of The Cerulli Edge – Europe Edition notes that fund managers seeking to win business from IFAs should either offer complete portfolio solutions or sell into investment firms providing such solutions, to gain IFA business indirectly.
Other Findings:
. Equity asset managers need to master or justify the volatility in their strategies if they are to successfully sell them to Europe’s insurers, says Cerulli. In conversations with the global analytics firm, insurers flag up unpredictability of outcome and ‘in-transit’ volatility as the industry’s two most common concerns when it comes to investing in equities.
. Asset managers are increasing their focus on best execution in forex, says Cerulli, adding that advances in transaction analysis, manager knowledge of pricing and distribution, and access to additional expertise are some of the factors behind this review of FX strategies.
. In the wake of various policy and market developments, institutional clients are increasingly expecting asset managers to design solutions that take into account environmental, social, and governance criteria, says Cerulli.
