By Tom Hawkins, Head of Strategic Partnerships, Charles Stanley
Advisers will be increasingly familiar with two of the central tenets of the new Consumer Duty rules: ‘price and value’, and ‘products and services’. Recommendations need to be fit for purpose and appropriate, but also represent the best option available for a client’s circumstances. This could bring increased scrutiny on the discretionary fund management arrangements for advised clients.
At the top end, discretionary fund management (DFM) comes with some unique features: bespoke investment management, with client preferences accommodated plus tax planning advice, careful income and drawdown management. It has also been ‘high touch’ -clients have had access to a personal investment manager at all times.
For some clients with complex affairs, trust arrangements, or complex investment needs, this will be the right option. However, the Consumer Duty rules may require an honest appraisal by advisers on whether their clients need the full toolkit that comes with a bespoke service. Certainly, they may prefer it, enjoying the personalised service and access to an investment manager, but even where this is the case, regulators may still suggest advisers should steer them to cheaper, more appropriate options.
This question brings into focus the second tenet: price and value. Are clients paying a bespoke discretionary fee for a service that might be more fairly described as a tailored model? Or even an unadjusted model? If challenged by the regulator, where is the ‘value’ for the ‘price’? This may be a difficult conversation with a long-standing DFM partner, but one that needs to be answered if advisers are to stay on the right side of the regulator.
Middle way
For advisers who conclude that their existing DFM provision may not be the right option for clients, there is a dilemma. Lower cost solutions can come with a significantly lower level of support. Updates may be infrequent, there may be little or no tax management, and there may be no drawdown or income support for clients that need it. Clients with cherished holdings, or legacy holdings from their workplace, may not be able to integrate them successfully. This is unlikely to meet the FCA’s requirements either.
At Charles Stanley, we concluded that a middle ground was needed – somewhere between a full bespoke DFM option and a light touch managed portfolio service option. Our solution is a tailored DFM service, which provides many of the crucial elements of a DFM service, but at a lower cost.
It has the usual elements that advisers need – it is aligned to risk models. Our asset allocation approach is forensic, and all our clients benefit from it. It powers our model portfolio services, but also helps us serve our bespoke clients effectively. However, the tailored DFM service will use a broader range of investment options than our dynamic, responsible or blended managed portfolio services to implement the asset allocation framework. This may include trackers, funds or even direct holdings depending on where the best options for efficiency and price can be found.
The new service also retains many of the client service elements that investors expect from a bespoke DFM service. Cherished assets can be held in a ringfenced XO client account, for example. The service allows for capital gains tax management, plus drawdown or other income support. Clients will also have access to a portfolio manager.
This is not the right approach for those who need personalised support from an investment manager, or face to face meetings (although in practice, the adviser may be providing this anyway). Equally, it won’t suit those with complex trust needs or very specific investment needs. We can accommodate generalised sustainable investment preferences, but not very specific options. However, for clients not using the full toolkit of a bespoke DFM proposition, but where a managed portfolio service is inadequate, it is an alternative option.
Consumer duty is an ongoing focus for the regulator, and certain parts of investment practice may come under further scrutiny. We see advisers increasingly examining individual DFM recommendations through this new lens. There will be clients using the full DFM toolkit, but there may be better options for those who don’t. Our Tailored DFM service may offer a middle path.
Tom Hawkins. Head of Strategic Partnerships, Charles Stanley
Tom joined Charles Stanley in 2022. He has over 20 years’ experience across Skandia, old Mutual and Quilter in roles including Head of Proposition Marketing, Business Development and most recently national and Networks.
For more information on our tailored DFM service, contact Head of Strategic Partnerships, Tom Hawkins on 020 3627 3990 or email here.
The value of investments, and the income derived from them, can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable guide to future returns. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority.
