Discretionary permissions: big win or small window of opportunity?

According to a recent article in Money Marketing, more advisers are looking to bring investments in-house. This is based on Platforum data which shows 11% of adviser firms plan to get discretionary permissions in the next five years (16% currently have them). Having the regulatory permissions to make investment decisions without the need to keep contacting clients to ask for their blessing beforehand may seem like an ideal situation for an adviser firm but, in reality, unless the firm has significant scale, it can be a bit of a poison chalice in terms of cost and compliance risk.

A few years ago, research (Vanguard, The Economics of Loyalty Adviser Impact, 2011) found that nine out of ten (88%) consumers say they need help from an adviser to achieve their goals and less than a third (30%) of adviser clients say they only pay for investment performance.

Yet, according to Platforum, advisers say that over 80% of their revenue is coming from investment business, so I guess it’s easy to see why they may want to put even more focus on this side of the business.

Building expertise on the investment side is no bad thing but having a suitably qualified team in-house is expensive – £50,000 in regulatory capital for a start with well in excess of £250,000 per year in salaries, bonuses, compliance support, research, data services and other operational infrastructure. And there is a real risk that other areas of the advice service will suffer. Being investment experts takes time, focus and endless research, leaving little time for actually seeing clients, let alone finding new ones.

Surely the better option for advisers is to find an investment partner who can provide the expertise and full-time focus on the investments, leaving advisers time to fulfil the broader financial planning role.

Is it really the case that clients believe they are only paying for the investment advice?

Investment choice and performance will always be an essential part of the client/adviser relationship but this doesn’t mean advisers need to be the ones making the investment decisions directly. There are so many elements that impact an individual’s financial situation over their lifetime. When using an adviser surely most people want to know their financial back is covered across the range – mortgage, insurance, tax planning, pensions and investments, and that their adviser has the time and space to look widely at the financial landscape rather than just having a nose pressed firmly to the investment window.

For advisers exploring the options of finding an investment partner, PortfolioMetrix has produced a white paper entitled Riding the Winds of Change: Centralised Investment Propositions and Why Your Business Needs One. A free copy can be downloaded by clicking here.