Gillian Hepburn, Schroders’ Head of Intermediary Solutions, talks to IFA Magazine Editor, Sue Whitbread, about the increasing importance to advisers of investment solutions and why delivering appropriate client outcomes is the key driver of success.
SW: What’s happening in the investment outsourcing market today? Are advisers continuing to move towards this rather than building their own model portfolios? And if so, why?
GH: It’s certainly a growing market. It’s one in which I’m pleased to say, the Schroder Investment Solutions range has already established itself with advisers as offering a series of low-cost and risk mapped awardwinning model portfolios and multi-asset funds.
In May 2022, the latest Schroders’ adviser Pulse survey gave us clear insight into advisers’ preferences and behaviours when it comes to MPS and outsourcing. Of the 225 advisers who responded, 17% told us that they’d increased their use of investment outsourcing in the previous year. Particularly interesting was that 31% told us they now manage more than half of their clients’ assets externally, rising from 21% the previous November – a notable increase.
Unsurprisingly, the most important element for our respondents was access to expertise and resources via their investment partner.
Effective volatility management was also an area which advisers highlighted as important. Today’s volatile market conditions really amplify the importance of working with professional investment partners, both for up to date information as well as having greater peace of mind to help clients through the ups and downs of the investment cycle.
The operational effectiveness of providers is another big factor for advisers too.It’s more efficient for them to work with an investment partner. But how?
Put simply, outsourcing the investment decisions is cost effective as it enables advisers to spend more time with clients. Clearly, advisers are focused on delivering value through their client proposition. That means they’re putting clients’ needs first, on delivering strong relationship management based on trust, on spending time with clients, so that their financial plans reflect their all-important goals and objectives. Advisers told us they want to do more of this, to spend more time with their clients because that’s what their clients value and that’s what they want from their adviser.
So why would advisers wish to manage the investment portfolios inhouse, especially as there are so many expert-driven options available externally? I’d argue that working with an investment partner can bring real benefits in this regard.
These points are all inter-related of course.
In my opinion, the increasing consolidation we see in the adviser sector is another driving factor. This boosts the requirement for a centralised investment process which often includes an element of outsourcing.
Of course, most advisers realise that outsourcing isn’t just a single option; there is a plethora of solutions available.
At Schroders, not only are we whole of market but we also run 25 model portfolios across three different strategies – ranging from active, strategic index ( predominantly passive) and sustainable right across the full range of risk profiles. It’s a broad range of managed solutions to give advisers the best chance of finding the appropriate one to match their clients’ individual requirements – and they’re available via 13 different platforms too.
As well as our managed solutions, Schroders also offers two sets of multi-asset funds which mean 13 additional funds, plus an income fund.
Given the breadth and depth of our range, especially when we consider the additional range via other external managers where we invest, our resulting client portfolios achieve incredibly wide diversification. This is reassuring for both advisers and clients alike.
SW: What do you see as being the most important criteria which advisers use when selecting an investment outsourcing partner?
GH: Again, referring to our latest Pulse survey data, still front and centre when it comes to advisers’ criteria are performance, costs, investment process and service.
When it comes to performance, advisers are mainly looking for the portfolio to deliver on its objectives. It needs to be risk-aligned of course. Whilst it is not about outperformance, underperformance is not easily tolerated.
Clearly, cost is important too. That’s why when we launched the Schroder Investment Solutions range in the spring of 2021. We did so with just a 15bp management charge (no VAT) with our multi-asset funds starting from 29bps.
Any underlying investment process needs to be easily understood by advisers, but also it needs to be relatively straightforward for them to explain to their client – and be consistent.
Schroders offer real clarity here. Across our three sets of MPS portfolios and two sets of funds, there’s one investment process which applies regardless of strategy or fund. This keeps things very efficient and simple.
Service is of huge importance too. Advisers need to be fully informed about what their partner is doing with the portfolios and when they’re doing it. Good communication and providing appropriate resources in this regard, are crucial.
The new Consumer Duty rules come into play here too, as appropriate due diligence needs to be evidenced. We help advisers to stay in control of their client conversations with regular updates, webinars, and a dedicated – and knowledgeable – sales team. We provide a range of practical guides (ESG, wealth transfer, crypto etc) as well as client facing material to support advisers’ needs.
I believe that, as a trusted investment partner, the total support package that we offer to advisers is incredibly valuable and something we take very seriously indeed.
However, we know that advisers are always in the driving seat when it comes to their clients’ investments. We therefore listen carefully to our adviser partners and all our efforts are focused on delivering the solutions which work most effectively for them and their clients.
Delivering appropriate client outcomes is at the heart of everything we do. We believe that this can be achieved by combining advisers’ strengths with ours through Schroder Investment Solutions.
SW: What do you think the future looks like for outsourcing and in particular proposition developments?
GH: It looks very positive in my opinion. This is backed up by our research which shows an increasing use of outsourcing by adviser businesses. I believe this is set to continue for many reasons, especially considering all the challenges that advisers are facing in markets, regulatory and business efficiency, consolidation etc.
As for proposition development, that’s an interesting point and one where we have some exciting news.
Schroders has recently launched our new offshore model portfolios. These are initially focused on our active portfolios and sustainable models which are available in Guernsey, Jersey and Bermuda and with five risk profiles.
We run a lot of private client money in these areas and are seeing strong interest in model portfolios. As you’d expect, these new models are managed in exactly the same way as our onshore proposition so there is real consistency in what we’re offering to advisers.
But we’re not resting on our laurels. We continue to look at how we can broaden that proposition, to look at what advisers and their clients actually want and react to them.
As examples, I believe that there’s a need for a different way of providing income solutions for clients in today’s challenging market conditions and also for the ability to deliver greater personalisation of services – especially in sustainable investing – in a cost-efficient way. It’s an interesting arena and I envisage many developments happening in the years ahead as propositions become even more established.
SW: Your investment solutions range launched in 2021 – what’s the response from advisers been like so far?
GH: It’s been really positive. We’ve increased the number of advisers who are working with us and using the models, and we’ve been really pleased with asset flows despite challenging times. We’ve also been encouraged to see strong – and growing – numbers attending our webinars.
Gillian Hepburn, Head of UK Intermediary Solutions, Schroders
Gillian has over 30 years’ experience in financial services. Prior to joining Schroders, she had an extensive career at Standard Life followed by consultancy positions with a range of platform providers, asset managers and financial advisers.
At Schroders, Gillian is responsible for investment solutions for the UK Intermediary channel which includes Schroder Investment Solutions, a range of model portfolios and multi-asset funds. She is also a Non Executive Director at Benchmark Capital.
Gillian is also on the advisory board for Women in Asset Servicing and was named as ‘Woman of the Year – Investment’ at the Professional Adviser Women in Finance awards 2021.