Non-aligned financial advisers might be structurally separate from institutions, but most still comply with the “institutional model” of portfolio construction, says an investment management consultant.
Addressing delegates to the AIOFP offshore conference in Tokyo, Japan over the weekend, DFS Portfolio Solutions director Stephen Romic said many in the IFA sector are only half-way to true independence of influence from financial institutions.
“Under the surface of marketing and differentiation, IFAs are generally adopting the institutional model,” Mr Romic said. “They follow the same research process and the same approach to portfolio management.”
Too few IFA businesses are capitalising on their chief competitive advantage against larger institutions, said Mr Romic, who also runs self-licensed advice firm DFS Advisory.
“I would argue that the true competitive advantage for IFAs is not in strategic asset allocation or portfolio construction, it is our small, boutique size,” he said.
“This allows us to be agile and responsive, and allows us to give clients the thing they have always wanted but are told they cant have: a steadier path and downside risk. By contrast, the sheer weight of [funds under management] at the institutions doesn’t allow them to easily make changes.”
In order to eliminate institutional control in portfolio management and compete, IFAs need to adopt non-conflicted research that doesn’t operate on a pay-to-play basis for fund ratings and also ensure they have access to global portfolio management functionality without paying exorbitant fees for active management, he argued.
Mr Romic said he is seeing a growing number of IFAs going towards “direct investment” and “off platform” options, and the managed account environment.
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