28th June 2013

Building value in your business through your investment proposition

As we enter a new era in Financial Services it is worth taking stock and asking what will characterise successful advisory businesses in the future. Balancing regulatory and client demands with achieving commercial success is challenging.  As a business you will need to be well resourced with a clear business model in order to generate a higher percentage of recurring income. Your focus will be on revenue generating activity: providing advice and on-going service to clients.  Building the right investment proposition and operational infrastructure to facilitate this can dramatically influence the growth and future value of your business. 

For advisory businesses the days of essentially being distributors for the life companies and investment groups are gone.  The traditional value chain is being reassessed and relationships between advisers and providers redefined.  As an advisory businesses you should be in control of building your investment proposition and the providers are there to provide the component services to help you to do that.  It is as it should be after all you are the keepers of the object of greatest value – the relationship with the client. 

There are a number of different approaches that you can take to build your Investment proposition and no end of providers champing at the bit to support you in doing that.  Ultimately the decision you make should be driven by your business model, the interests of your clients and your aspirations for the future. 

There has been a growing trend amongst advisory businesses to outsource to discretionary fund managers (DFMs) driven by increasing regulatory and operational burdens and the need to focus on revenue generating activity.  This route has clear benefits but comes with some downsides.  If the DFM’s investment strategy represents a significant part of your client proposition be careful that outsourcing does not reduce your value.  Outsourcing involves transferring clients’ assets to the DFM so any decision to change would entail a move of assets to a new DFM.  This can be disruptive to clients, time consuming for the firm and may precipitate CGT issues. 

At the other end of the spectrum there is another trend emerging –advisory businesses offering their own in-house discretionary solution.  Only about 2% of advisory businesses currently hold discretionary permissions, but numbers are set to increase.  There are some compelling arguments: It places control of the client relationship and the investment proposition squarely with you; there is potential to deliver superior communication and servicing to clients; and ultimately scope to generate greater revenue and increase business value.  To achieve this you will need to change your business model and this brings with it considerable responsibilities and risks. The first requirement is to have the right resources to undertake investment management.  Additionally, there are implications for capital adequacy, regulatory reporting and PI insurance.  From a client perspective, expectations of returns will need to be set and managed and let’s not forget – there will be no hiding during periods of underperformance

For those businesses equipped to manage a discretionary business model, this solution may well represent the future.  For the majority of advisory businesses however, there are other ways of retaining control of the investment proposition without having to take on the additional responsibilities and risks.

At North we focus on providing on working with Advisory businesses looking to build ‘insourced’ investment management services. For us insourcing is simply about creating and managing an investment proposition built around the needs of your clients and your businesses.  We have developed a discretionary management platform that provides all the regulatory, operational and investment management benefits of outsourcing to a DFM whilst leaving the control of the investment proposition where it should be - with you, the Advisory business.

In an environment where it is all about delivering superior client outcomes and differentiating yourself from your competitors your investment proposition should to be unique to your business.  Everything from the platform, portfolios, marketing materials, reporting and communication can be branded and tailored to your requirements.  You need to be able to offer a range of actively managed portfolios designed to meet the specific needs of your clients.   At North we also believe Advisor firms want and need to provide a choice of investment approaches for their clients and so we will work with other DFMs.  We do this under single investment management agreement which provides you with the comfort of with through due diligence and oversight of all your portfolios whoever they are managed by.  This approach enables DFMs to added and removed with virtually no disruption to the underlying clients or the advisory businesses.

We have outlined some of the approaches that you can take to build your Investment proposition but whatever route you settle on take care to keep control of your investment proposition.  After all who is better placed to determine what will deliver the best outcomes for your clients and your business than you.

North Investment Partners Limited provides investment management services to advisory businesses.  We have developed a proprietary discretionary management platform, the Wealth Solutions Services which we use to help build unique investment propositions for advisory businesses.  

For further information on the services that North can provide please see our website www.north-ip.com or contact Ryan Bagnall Relationship Manager North Investment Partners. Email:  ryan.bagnall@north-ip.com Telephone:  02079475470

Rebecca Murphy, Director - North Investment Partners

Business Development, DFM