Majority of advisers now outsource portfolio management – survey

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The majority of investment advisers now outsource portfolio management, according to the latest Schroders Adviser Survey.

Findings from the Q4 research, which canvassed 252 investment advisers, show the total number of advisers outsourcing portfolio management has risen above 50 per cent for the first time while the proportion of advisers who choose not to outsource has dropped to 48 per cent.

Broken down, 17 per cent of advisers outsource over 50 per cent of client assets; 9 per cent outsource up to 50 per cent of assets; 10 per cent outsource up to 25 per cent of assets and 17 per cent outsource up to 10 per cent of assets.

The majority of advisers who outsource portfolio management to services such as multi-managers, wealth managers, platform solutions and rating agencies expect to remain with the provider they currently use for the next 12 months, which Schroders co-head of intermediary James Rainbow says shows “the market appears to be bedding down”.

Advisers are now showing a preference for how they charge clients, with percentage basis fees the most popular method for 57 per cent of advisers. Only 3 per cent of advisers charge a fixed fee and 1 per cent an hourly rate, while 38 per cent charge a combination of all three. In 2015, Schroders found charging a combination of all three was the most popular method at just over 50 per cent.

The average fees charged by advisers are increasing, this year’s survey shows. The largest proportion of advisers – 43 per cent – charge an average of 75 basis points, compared to last year when the number of advisers charging an average of 75 basis points and those charging an average of 50 basis points were similar at about 35 per cent each.

This year 28 per cent of advisers said they charge an average of 50 basis points, while 24 per cent charge an average of 100 basis points and 5 per cent charge more than 100 basis points.

“Advisers have pricing power on their side more now than they did before,” Rainbow says.

The number of advisers segmenting their client base according to size or revenue is similar to last year at 48 per cent, with a further 14 per cent planning to segment, and the proportion of advisers who have asked smaller clients to leave has only risen fractionally to 20 per cent.

However, the exclusion point in asset terms of those asked to leave has increased, suggesting the advice gap is widening. In 2015, the majority of clients asked to leave (36 per cent) had assets of less than £25,000, while in 2016 the majority of clients asked to leave (48 per cent) had assets of less than £100,000.

“The average pension pot is below £30,000. This shows the increased need for other types of advisers,” Rainbow says.