As an Independent Financial Adviser (IFA), you pretty much have two choices when it comes to providing investment advice to your clients.
Either you can do it yourself or you can delegate it to someone else.
If you choose the former route you need to have pretty robust systems and processes to ensure consistent advice and a thought through investment philosophy that means something to your clients.
If you choose the latter approach and outsource then you need an equivalently high level of confidence in the firm to whom you outsource.
Frankly there is no right or wrong approach but it is about suitability.
I spent yesterday afternoon at Asset TV (together with two other IFAs) asking some challenging questions of three well known Discretionary Fund Managers (DFMS).
Like all IFAs we recognise that our clients have a very important item on their shopping list that of transparency. One of the first questions we asked was whether the proposition from DFMs was truly transparent when it came down to the charges that they applied to their investment management proposition.
Usually the DFM charge will be expressed as a percentage of the funds that they manage but consumers and indeed advisers need to recognise that there are other charges to consider as well such as trading costs, annual management charges on any collective investment funds that are included in the portfolio and indeed VAT in some situations.
Our second area of interest was in the field of choosing the right DFM.
The IFA needs to carry out a suitable due diligence before selecting a DFM service. Experience and actual results count for a lot but so does the resources available for research and the ability of the DFM to communicate well with the client.
Another key item on the client shopping list is going to be regular flows of meaningful information. For DFMs this definitely means providing on-line access to client portfolios and at least half-yearly formal reporting to the client.
If used properly the consensus of the panel asking questions was that the role of the IFA was to act as devils advocate and to challenge on behalf of their clients the results (good or bad) of the DFM.
The best mix was considered to be where the IFA provided the financial planning advice and technical advice and this in conjunction with effective wealth management provided by the DFM.
It was agreed that as a result of the Retail Distribution Review (RDR) driving change in the intermediary market, more IFAs may determine to outsource the investment advice part of their proposition but equally like Informed Choice others may have sufficient resources and expertise to continue to do it themselves.
Photo credit: Flickr/Mr. T in DC
