In this analysis, Sean Osborne, Group Head of Sales, Charles Stanley, sets out why he believes that when it comes to delivering for clients, one size does not fit all.
There have been many arguments over the years about whether clients are better served by centralised model portfolios or client-driven mandates, especially the FCA’s focus on consistent outcomes. With the advent of Consumer Duty, commentators have taken the price and value aspects as an opportunity to hammer another nail in the coffin of bespoke mandates.
But in the following analysis, Sean Osborne, Group Head of Sales, Charles Stanley, argues that this overlooks an important tenet of the new principle: the focus on ensuring individual outcomes and transparency in all aspects of the client’s wealth solutions.
The FCA weighs in
The FCA has not helped the cause of bespoke advocates. In a webinar at the end of 2023, the regulator stated that some wealth firms were ‘preying on their customer trust and understanding, pushing bespoke, expensive portfolios which do not really match the risk profile of customers.’
Even though it qualified its remarks with the all-important “some”, it has been seen as a veiled reference to “all”.
The discussion reminds me of similar debates that were had in the late 1990s and early 2000s over whether active fund managers were essentially charging for closet index tracking, and the subsequent debate about active voice. The initial claims tarred and damaged the public reputation of an entire industry for many years without first exploring the nuances of the topic.
Like that argument there is no right or wrong in this debate. But there may be a lot of losers if we abandon sight of the most important element: the client.
What are clients looking for?
If we focus solely on cost and value for a moment, any client solution has to pass these two tests. Of the two, the most important is what do consumers value? I was fortunate enough to be closely involved in a piece of independent consumer research with AKG earlier this year that asked clients what they most valued from the relationships with their advisers.
Peace of mind was the most selected option followed by having someone human to talk to. And one of the key elements which bespoke clients value, is access to their own investment manager – often locally based – who they can meet with alongside their financial planner.
Value for money was way down the list at 6th position, and making money came in 12th. That’s not to say value for money and generating wealth are not important. They clearly are. But it isn’t the only consideration.
What the AKG research told us is what clients value can often not be shown in something as tangible as a bip and is often highly personal to them. We are all individuals and we all value different things. So I don’t believe a client’s investment choice should be limited to a one size fits all model portfolio service just because on the face of it, it might be cheaper. Just being cheaper might not be what the client values.
For some clients, preserving and protecting the wealth they have – and leaving a meaningful legacy for their families – is more important. And for clients in these situations, the structured nature of model portfolios may not provide the flexibility required to fully address their specific needs.
Bespoke is also suitable for clients who value personalisation, where they have specific sustainability or responsible investment preferences, things like individual inclusions or exclusions around stocks and investment themes. Those individual preferences can be captured by the investment manager and integrated across the client’s various accounts. Because ‘bespoke’ also brings with it the ability to manage different elements of a portfolio (pensions, ISA, GIA) to different risk ratings or investment strategies. This can be particularly important when planning intergenerational wealth transfer or earmarking proceeds from, say, a business or property sale.
Some MPS solutions can be restricted in the securities and investment vehicles they can employ simply because they are not available on the adviser’s chosen third party platform. We also need to acknowledge that for clients with complex affairs, trust arrangements, or complicated investment needs, bespoke will always be the obvious option. Court of Protection cases are a perfect example of how fully bespoke investment management can be essential in providing clients and deputies with comfort over the financial future and the client’s financial wellbeing. This is especially true for children and young people, where the award may have to carry them into old age, or in cases where future complications are unknown or uncertain. A bespoke plan that grows and develops over time, associated with continuity of relationship, provides more than just financial peace of mind.
Tailored Discretionary Fund Management: A Consumer Duty superhero
In the evolving landscape of financial services, the Tailored Discretionary Service provides a sweet spot between MPS solutions and fully bespoke investment management. Perfectly positioned within the Consumer Duty framework, Tailored DFM offers a unique blend of personalisation and standardisation, making it an affordable yet flexible option for both advisers and their clients.
By leveraging a centralised investment strategy, Tailored DFM ensures a consistent approach, oversight, and control – ideal for advisors who prefer the adviser-as-client model. The service provides direct access to a dedicated team of portfolio managers, facilitating a more personalised experience. As most client portfolios are managed collectively, it enhances efficiencies in reporting, conducting regular reviews, and addressing investment-related queries promptly.
Unlike many MPS solutions, the Tailored portfolio managers are unrestricted in their investment universe, they can select the investment they believe will generate the best risk-adjusted returns, for the exposure they are trying to target and can choose direct equities and bonds, active and passive collectives, and investment trusts.
The portfolios can accommodate income or drawdown requirements and tax-efficient management, including managing across multiple account types, handling ISA subscriptions, and Capital Gains Tax harvesting which is an exercise completed before the end of the tax year to utilise any unused CGT allowance, or to lock in losses to reduce the value of any gain. While this is generally enough for most clients, there are still those who need the full CGT management that only a bespoke service can bring, which could mean staying within the capital gains tax allowance so that the client does not incur a capital gain.
For those clients who need more than a one-size-fits-all solution but do not require the additional elements offered by a bespoke service, Tailored DFM stands as an ideal choice, offering the benefits of scalability, cost-effectiveness, and tailored investment.
How can advisers steer their way?
Everything starts with the client. For an adviser, deciding on the right approach means considering the complexity of need alongside the usual assessment of risk profile, long-term objectives and time horizon(s).
1. Assess the client’s risk profile
2. Assess the client’s long-term investment needs
3. Assess any client-specific personalisation needs
4. Determine whether an off-the-shelf model portfolio is appropriate
5. If it isn’t, determine how far away the preferred solution is from any available model
a. Will a tailored portfolio cater for these needs?
b. Is a fully bespoke portfolio required?
Then find the right provider who can offer the solution you require. Target market assessments are a good guide in this regard. They identify different groups of clients, their needs, and how their needs differ, to demonstrate how the different services offered best suit each client cohort.
At Charles Stanley we have an abundance of riches that provide the full range of products and services to support the adviser community. From multi-asset funds, through a fantastic model portfolio service and tailored DFM, to truly bespoke approaches because we see the value all these bring to the end investor. We even have a long-standing and dedicated Court of Protection team because of the very specific complexities these cases present.
If you need help with a client case, you can contact the intermediary sales team to discuss how our different solutions might be able to help. Alternatively, you can find our target market assessments on our website.
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About Sean Osborne
Sean is Group Head of Sales at Charles Stanley. He started his financial services career over 25 years’ ago and held a number of sales and senior roles at AVIVA, Aegon and Legal and General. In April 2011, Sean moved to Suffolk Life, part of the L&G Group, as a member of its Executive Committee where he worked as Head of Sales. In December 2018, Sean joined Charles Stanley as Head of National Accounts, before moving to his current role as Group Head of Sales in May 2021. Sean is responsible for driving Charles Stanley’s development and distribution across multiple channels of the UK market. Outside of work, Sean is married with two children and enjoys spending time with his young family and exploring somewhere new.
For more information on how Charles Stanley can partner with your business, contact Head of Strategic Partnerships, Tom Hawkins on 020 3627 3990, or email tom.hawkins@charles-stanley.co.uk.
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