It’s a big decision to introduce an in-house model portfolio service. Ben Willis, Head of Portfolio Management at independent financial advisers Chase de Vere, explains why they made the transition earlier this year and highlights some of the issues involved in the process
The number of financial advisers who are using discretionary management services has increased significantly over the years. Making investment decisions for clients is becoming time-intensive, more complex and less efficient. Not only are advisers required to constantly understand and interpret what is happening within investment markets, they then have to undertake the necessary research to make the appropriate recommendations to their clients and receive agreed permissions from their client before they can proceed with the investment advice. This process can take an inordinate amount of time and effort.
As a result, more and more advisers are using discretionary management services. Forward-thinking financial advisers realise that they are responsible for their clients’ financial and tax planning as well as helping them to meet their goals in life. They see this as the core focus where they add value. There is a growing lack of appetite amongst financial advisers to take on asset allocation or responsibility for investment management for all of their client investment needs. Instead, they prefer to use the time to focus on actively managing and developing client relationships.
A new order
Such a scenario is why Chase de Vere has recently launched an in-house discretionary model portfolio service for use by its independent financial advisers. This decision was based on several crucial factors.
Firstly, the discretionary service would embrace and adhere to Chase de Vere’s embedded investment beliefs, which the advisers are constantly working towards when providing investment advice. This reassures the advisers, and their clients, that the discretionary service would be managed in the ‘Chase de Vere way’.
Secondly, by offering an in-house proposition, Chase de Vere is able to control costs. Although advisory firms are able to negotiate commercial deals if they outsource, they are still beholden to the costs of the external discretionary provider, and these costs tend to increase over time. However, by offering an inhouse discretionary service, we were able to keep the annual management fee and portfolio fund costs at a competitive, keen level.
Thirdly, by going down the in-house route, advisers who are looking to use, or who are already using, the discretionary service, have unlimited access to the discretionary managers; the Chase de Vere portfolio management team. This means that they can get up-to-date real-time portfolio information, the team’s investment views, asset allocation decisions, either in person by email or by phone. Naturally these avenues of communication are open if an adviser was to outsource; however, access to the in-house portfolio management team is more convenient, swifter and reliable.
These are all factors that were carefully considered before Chase de Vere decided to offer an in-house discretionary proposition to its advisers nationwide, and this is how the Chase de Vere Select Portfolio Management Service was born. The Select Service was launched at the beginning of June this year. It has been well received and well supported by Chase de Vere advisers since launch.
Model portfolio “clients”
The basis of the Select Service was to offer in-house transparent and simple, cost effective, risk-rated model portfolios suitable for a broad range of clients. The service offers cautious, balanced and adventurous risk rated portfolios within four clear investment needs: capital growth, higher income, income & growth and ethical. This equates to twelve portfolios – or as the portfolio management team see it – twelve ‘clients’. We will always manage each portfolio to its investment objective and per its stated risk profile. The beauty of this approach is that it doesn’t matter whether we are managing £100 million in monies or £1 billion, we are always looking after twelve ‘clients, each with a focused investment objective and specified risk profile.
Nuts and bolts
The significance of transparency and simplicity is often underestimated when providing investment expertise. We have to remember that many clients are entrusting us with their personal wealth, which they have worked hard to build over many years – and therefore the success of their financial future rests with us. This is why we only use FCA recognised and authorised, daily dealing collective investments within the Select portfolios we manage. We believe that our clients, and their advisers, should have a clear understanding of where and how we are investing their personal wealth in order to achieve their long-term investment goals.
Since the advent of the Retail Distribution Review and more recently, MiFID II, transparency of costs has been front and centre. We have become a far more cost conscious industry and so ensuring that we offer a competitively priced discretionary service to the advisers and their clients was of the utmost importance.
Control of costs
Because we offer an in-house discretionary solution, we have complete autonomy on our charging structure. Our knowledge of the price of advice means that, for the average investment case size, we were working towards an all-in cost to the client of 1% per annum (net of the advice fee). This 1% has to include the fee for managing the discretionary portfolios, the ongoing charges of the underlying funds held and the platform fee. It is not unusual to find that for many outsourced discretionary service providers, the discretionary management fee alone, net of underlying fund charges and / or administration charges is 1% or higher.
The Chase de Vere Select Service is currently available on Fidelity Funds Network and we are planning to launch on a number of other platforms. The bonus of hosting the service via platforms is that it removes the back office administration and trading burdens that have to be absorbed by outsourced discretionary service providers that are running nominee accounts. Because of this, many discretionary service providers have high minimum investment levels, sometimes in excess of £100,000. However, we are able to offer the Select Service for as little as £20,000, or £100 per month regular premiums, ensuring that our discretionary management service is far less exclusive and available to a much wider audience.
Although the benefits of providing an in-house discretionary service are clear to see, we appreciate that Chase de Vere was in an enviable position to design, develop and deliver this for their advisers. Clearly this route is not a viable option for many advisory firms and, to this end, outsourcing may remain the most suitable option.
Because we offer an in-house discretionary solution, we have complete autonomy on our charging structure
About Ben Willis
Ben joined Chase de Vere in April 2018 and is Head of Portfolio Management responsible for fund research and managing their in-house discretionary portfolio service. Prior to joining Chase de Vere, Ben spent twelve years at Whitechurch Securities in Bristol managing client and corporate discretionary portfolios for financial advisers.