The Provision of Investment Advice

This is an issue that will not go away.

A couple of years ago, we found that some of the most competent investment IFAs were considering outsourcing the provision of investment advice. Their concern was their inability to demonstrate competence giving such advice. At the same time, other advisers were arguing that the provision of advice is a core IFA competence, and that to outsource is almost to shirk responsibility.

Our research in early 2006 shows that advisers cotinue to be divided on this issue. Having said this, an increasing number have decided that some form of outsourcing will be needed as doubts are raised around the industry.

As observers, our concern is that customers do not know what they are buying in terms of competence.

We know of advisers who are unqualified but highly competent. The problem is that the client has no way of discriminating between them and those who might as well use a pin.

We are seeing different solutions. Firms as different in other respects as Best Invest and Bloomsbury have both decided to insource - to have qualified investment experts within the business. Francis Klonowski may have little in common with Hargreaves Lansdown except that Frank sees multi-manager has the logical solution to the provision of advice problem and HL have their own fund of funds. Others are employing portfolio managers.

A particular concern is the issue of rebalancing. It is standard practice today for many advisers to perform a risk profile of the client and then structure an appropriate portfolio. This surely creates an obligation to review the asset mix over time to ensure compatibility with the risk profile, especially if the adviser is taking trail commission?

It is not hard so see a litigation specialist taking an interest where a client has lost money as a result of a market collapse where the portfolio had become unbalanced and did not reflect the risk profile.

We are anxious to know what specific concerns providers and distributors have in this area so that we can conduct an appropriate detailed study. Please contact us.

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