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IFAs 'sailing close to the wind' with provider allocation tools

As New Model Adviser® research reveals 26% of IFAs use external investment consultants, opinions are divided on whether these free services break inducement rules

IFAs 'sailing close to the wind' with provider allocation tools

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.

Read more: Advisers warned on portfolios as Mifid tests loom.

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.

What the providers say


A spokeswoman for BlackRock said its model portfolio offering provides asset allocation frameworks to help advisers build strategies based around ethical, social and governance factors, smart beta and thematic exposures. It also offers investment updates and market commentary to share with clients, as well as more bespoke portfolio construction, where a ‘BlackRock dedicated team can support investors through consultative discussions’.

BlackRock said these services are not dependent on the IFAs placing business with it. The asset manager said it would charge for custom portfolio services, but not off-the-shelf model portfolio construction.


A spokesman for Vanguard said: ‘We are regularly invited to sit in with clients’ investment committees, to act as a sounding board and to provide our outlook. Typically, this would involve one of our investment strategists or relationships managers attending to share insights and guidance. These interactions are not billed.’


A spokeswoman said: ‘Natixis Investment Managers’ Dynamic Solutions Group provides objective portfolio analysis to investment professionals, using sophisticated analytic tools to identify sources of risk and return. The service is free and its product agnostic. Since inception in 2014, the group has analysed around 8,000 portfolios internationally.’

*Dimensional was unavailable for comment.

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