The last five years has seen an explosion of interest in discretionary management from financial advisers.
There have always been a handful of discretionary managers that have historically served the adviser community, but Defaqto now covers some 80 discretionary firms offering upwards of 180 discretionary solutions, and this number continues to grow. So what has changed ?
The ‘noughties’ saw exceptional growth in assets under management for multi-manager funds, growing from around £11bn at the beginning of the 2001 to in excess of £60bn in 2011. This was perhaps the first indication that there was an appetite from advisers to outsource some or part of their investment process.
It is fair to say that this growth in assets did not go unnoticed by the discretionary industry. If we couple this with the implications of the retail distribution review which began to evolve later on in that decade, it was a perfect opportunity for discretionary managers to target or, in some cases target again, the adviser distribution chain.
The retail distribution review has been the real catalyst in the growth of discretionary management in the adviser space. As far back as 2010, implementation of the retail distribution review policy looming at the end of 2012 encouraged adviser firms, perhaps for the first time, to think seriously about their business strategy and what services they will offer. Near the top of the ‘to do’ list was how to deal with clients’ investment portfolios.
Do not forget there were a series of market falls, culminating in the collapse of Lehman Brothers in 2008, followed by a period of very uncertain and volatile markets. This will already have led many advisers to consider their position in terms of management of their clients’ investment portfolios. The approach of the new distribution era will have served to really focus their minds on this matter. Advisers were starting to realise that outsourcing to full-time, well resourced investment professionals was in the best interest of clients.
Multi-managers and multi-asset managers were the first beneficiaries of this, and continue to be so with the evolution of risk-targeted funds. However, discretionary firms were changing fast to give advisers another outsourcing option.
The biggest hurdle to overcome, was an acceptance that to penetrate the adviser market the discretionary firms would have to give up custody of the assets. Traditionally, this had been how they had measured their success. Perhaps an accident of history but, with a few exceptions, platforms had engrained themselves in adviser businesses before discretionary management presented themselves to this market as a real outsourcing option.
Any investments held on a platform meant that the platform had to hold custody of the assets. This included discretionary assets. As is often the case, once a few discretionary managers had accepted this, more and more very quickly followed. Defaqto have recorded in excess of 50 managed portfolio services available through a platform.
