The cost and value of adviser investment solutions – case study

by Jason Baran
Insight Analyst – Funds

March 2015

A recent Defaqto survey shows that approximately two-thirds of adviser business is now directed towards using multi-asset funds, either as unitised products or as model portfolios on a platform.

Looking at a similar survey Defaqto conducted in 2010, the figures indicate that advisers are slowly moving towards recommending their clients into outsourced, multi-asset solutions.

This chart shows how frequently advisers use investment solutions:

Passive funds still underutilised?

A quarter of advisers build their own portfolios via single-asset funds. Most notably, only a fifth of this quarter (or 5% of the total) used passive solutions. This appears in contrast to institutional fund inflows into the passive sector over the past five years and raises the question of whether financial advisers are underutilising passive funds.

Are financial advisers considering as many solutions as they should?

Our survey results also indicate that advisers tend to use two or three types of solution on average, which could be interpreted as a kind of specialism in terms of how advisers make their recommendations.

For clients at both ends of the AUM spectrum, advisers tend to specialise even more, and recommend only one or two solutions.

In the case of clients with less than £50,000 to invest, an adviser is most likely to make their recommendations based on multi-asset funds. For large clients, with over £1 million, unsurprisingly bespoke solutions take precedence.

This result should be a reminder that advisers need to be unrestricted in their client suitability reports and recommendations. For example, a very wealthy client may receive better value from a unitised multi-asset solution compared to bespoke DFM, as they may not actually require a fully customised portfolio.