Asset managers offering free model portfolio construction and investment services are ‘sailing close to the wind’ when it comes to inducement rules, IFAs have been warned.
With exclusive New Model Adviser® research revealing over one in four advice firms use them, we asked experts what providers are offering and what expectations there are.
Many asset managers, particularly passive houses, offer IFAs free support. The process involves visiting an advice firm’s offices and helping it put together model portfolios.
In some cases, advisers are charged, and in others they are not. Services include stress-testing models or reviewing a firm’s portfolios at investment committee meetings. Vanguard, BlackRock, Natixis and Dimensional* are four fund houses that offer IFAs this type of investment support.
According to a recent New Model Adviser® survey of 205 firms, 26% use external investment consultants. A further 13% said they were considering it. These figures were much lower for firms running bespoke portfolios, however.
A thin line
Abraham Okusanya (pictured), director of consultancy FinalytiQ, warned asset managers could use them to win business with advisers.
‘Advisers have to be aware of the conflict of interest that comes with this. If advisers are inviting asset managers to their investment committees, not just to present or talk to them about their products but to actually make contributions to the process, they have to be aware of the bias the asset manager brings to the conversation,’ he said.
Although Okusanya does not think advisers are being ‘unduly influenced’ by asset managers, he did say these services could come close to the inducement line, especially if the adviser is not paying the asset manager.
The regulator has been placing more focus on providers’ free services recently. Last year it said platforms offering advisers free pension transfer value analysis reports will be classed as inducements.
Mark Polson (pictured below), principal of The Lang Cat, said offering investment services for free ‘is usually not for love’.
‘In this day and age, advisers are increasingly expected to stand on their own two feet commercially. We are all happy to see advisers receive training, but I think these kinds of business consultant services sail quite close to the wind,’ he said.
‘That is no comment on the quality of the services. They might be excellent, but it does feel a long way from the adviser standing alone and hiring the service providers they need.’
Richard Haines, investment director of Newport-based Gould Financial Planning, said his firm has used asset manager Natixis to stress-test the firm’s portfolios. He said: ‘We viewed it as “getting our homework marked”.’ He said the service is free, but has not led to his advice firm using any of their funds. ‘They have not been especially pushy either,’ he added.