It appears that model portfolios and IFAs who use them are the latest targets of the independent vs. tied debate which continues to gain momentum as 2013 approaches. If advisers can’t use model portfolios and remain independent what’s next? Will they have to build their own investment products?
Fay Goddard, chief executive of the Personal Finance Society (PFS), said there is a grey area concerning the use of models and she warned that IFAs who use them could jeopardize their independent status. The Citywire article can be found here. Whether she really believes this or just thinks it’s an angle the FSA is considering is not entirely clear but the article does beg the question: If model portfolios, constructed by independent investment professionals are not independent, what is independent?
Supporters of models (and sanity) were lauded by Holly Mackay from the Platforum who posted “a restricted rant” in response to the article. I think Holly makes some great points while advancing the debate. There seems to be a lot of fear mongering and emotion in the online forums recently so Holly’s response was a breath of fresh air.
This issue will continue to be debated, as will every other facet of the advice industry, from here to eternity – or at least until 2013 – whichever comes first. Using model portfolios to deliver a consistent, quality (and yes, independent) advice process has proven itself. I speak with advisers every single day who are able to provide better quality advice to more people than they could otherwise do on their own. I don’t see anything wrong with an adviser recognizing where their strengths are and outsourcing areas where they are not experts. The ultimate measuring stick is the client’s experience of course so the onus still lies on the adviser to deliver the process and provide the advice. Model portfolios can increase the quality of that process (investment selection by experts) and make it easier for an adviser to deliver the service.
Not all models are created equal though and they are certainly not a one-size fits all solution. Any adviser worth his salt knows this and it’s patronizing to use this as an argument against the independence of models. This is why our Adviser solutions can accommodate “home grown” models, 3rd party models and bespoke portfolios. Independent advice can stem from a model, or use a model as part of its process (a means to an asset allocation end) but there are other links to the chain that seem to be missing from the discussion. An independent adviser needs access to the whole-of-market as well in the event the models do not provide a complete solution for a client’s needs. Research and analytical tools are needed to dissect existing portfolios and consider products for niche investing. Independent, qualitative investment analysis provides a valuable second opinion or the needed conviction when it comes time to make an investment decision. And tools are needed to deliver a transparent, consistent service to the client while monitoring the progress of their portfolios.
Independent advice is not dead and it is not going to disappear. How independent advice is provided will continue to be tweaked though. The demands on advisers will grow and independent advisers will be held to a higher standard but I see this as a good thing for the end user – the client.