A few weeks ago, an email from Platforum landed in my inbox which featured a list of stats about the industry and one really stood out to me: nearly four fifths (79%) of advisers pick funds.
Picking funds is time-consuming to do well and carries risk so why do so many advisers choose to do it, especially as there are cost-effective alternatives?
If we think of it in terms of food (it’s nearly lunchtime while I’m writing this which may be why this comes to mind), advisers who don’t have discretionary powers and for whom investments are just one part of their business, picking funds for clients could be compared with chopping up some vegetables for a stir-fry then adding a ready-made sauce to the dish and serving it up as a home-made meal.
There’s nothing wrong with this and it may well be tastier and more satisfying than buying a ready-made meal you just have to microwave (the food equivalent of a model portfolio service) but without a doubt it’s far more time-consuming (just think of the washing up!).
Of course, the best option for saving time and getting a first-class outcome, is to eat food prepared by a qualified chef who is trained to produce excellent results from scratch. This is enormously time-saving but most likely carries a higher price-ticket.
My feeling is that as more advisers realise how much time they spend picking funds rather than being in front of clients carrying out a valuable financial planning role, there will be a shift away from the half-way house option. It’s likely more will opt to use the ready-made, model portfolio route, or they will choose to partner with specialist discretionary investment management companies who have the time, skills and expertise to dish up first-class outcomes without the risks associated by a DIY solution.