Firms should consider carefully before outsourcing their investment management activities, Assetfirst’s Philip Bailey has warned.
A recent study by the Financial Services Authority (FSA) raises concerns over the practice of outsourcing portfolio management to discretionary fund managers ahead of the retail distribution review (RDR).
In its latest guidance consultation, Assessing suitability: Replacement business and centralised investment propositions, the FSA warns outsourcing leaves clients at risk of being “shoe-horned into unsuitable ‘one size fits all’ investments”.
Philip Bailey, a partner at insourced portfolio management firm Assetfirst, says: “There has been a trend among IFAs [independent financial advisers] to outsource portfolio management to DFMs [discretionary fund managers] but the FSA has clear concerns with regard to this strategy not least in its suitability and cost to consumers.
“There are clear dangers inherent in this for IFAs. In outsourcing not only are they passing control of client investments to a third party but many clients see portfolio management as the core area of value in their relationship with the IFA.
“Offloading that service could see clients move their business to the DFM, especially as many DFMs have their own advisory arms.”