Is the DIY investment model holding your business back?

Platforum, the research and insights company that works with UK platform providers, fund managers, life companies, advisory firms, distributors, partners of platforms and platform users has, as you might expect, some interesting data about what’s going on within our industry. 

They recently revealed that their research shows more than one in 10 (11%) UK adviser firms plan to get discretionary permissions in the next five years (16% currently have them). Having the authority to make investment decisions on behalf of clients may seem like the perfect situation for any adviser but the cost and compliance risk it adds shouldn’t be taken with a pinch of salt.

To run a first class investment team in-house can cost eye-watering amounts: £50,000 in regulatory capital and over £250,000 per year in salaries, bonuses, compliance support, research, data services and other operational infrastructure.

All very well if you’re working in a large firm with the economies of scale that can absorb the overheads involved in having discretionary permissions. Quite a different matter if you are working independently or are part of a small team.

Even without discretionary permissions, many advisers opt to manage investments themselves on behalf of clients, regarding this as necessary to justify their earnings. According to Platforum, advisers say that over 80% of their revenue is coming from investment business, so it’s easy to see why.

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

Being an investment expert takes time, focus and hours of research. Unless you burn the midnight oil and do this outside normal working hours, this means your ability to actually see clients day-to-day is seriously compromised, which results in fewer consultations and lower assets to manage. In short, it’s a real business inhibitor.

Just because investment choice and performance are an essential part of the client/adviser relationship, it doesn’t mean advisers need to be the ones making the investment decisions directly.

As the Vanguard research shows, the majority of people don’t choose an adviser to simply manage their investments. They use one because they want financial peace of mind; to know that their financial back is covered across the range – mortgage, insurance, tax planning, pensions and investments. How the investments are managed is probably of little consequence to most. What matters to them is performance in line with their goals, within a risk framework that aligns to their appetite and that meets regulatory requirements.

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 at

This article first appeared in the November edition of The Trade Press publication.