While we are busy refining our own business offering and adapting to what we have learned over the last six months since we launched our website, we are seeing many finance professionals in the same boat. We are all attempting to smooth the communication process between client, adviser and investment manager.

Without getting too philosophical, we are proceeding from an industry where the product provider drove the development process as the “adviser” took a role that was primarily that of an informed distributor. The push back in the form of the RDR has emphasized the importance of the adviser role to the client and its influence that the investment manager must accommodate.

There is clearly a lot to be done on the part of advisers to repair reputations and fulfil the role that they have been given as Malcolm Kerr of Ernst & Young suggests, The Advice Industry is in for a Bumpy Ride.

We are excited by the prospects for the advisers that are embracing the changes in the industry. As the financial advice end of the market moves to direct charging rather than commission generated revenue we will inevitably see the move to a more professional service environment.

Systems, Operations and Methodologies – Will it Ever End?

Advisers face the prospect of integrating systems, redefining operations and implementing a robust investment methodology. While we expect casualties the rewards for a well-run business will remain.
There will be a squeeze on costs and it will happen all along the supply chain, but it should result in a leaner and more effective advice industry along with its associated portfolio management services. This type of general shake out has probably been lacking for a number of years, if for no other reason than the good times permitted continued inefficiency.

At this stage in the process we are seeing a tension between the adviser as custodian of the client relationship and the investment manager as the driver of investment performance. Each party clearly believes in the respective value that they create and that they should be appropriately compensated for their efforts.

We appear to be in the middle with our investment management experience as we deliver market intelligence for the broader spectrum of market professionals. This tension between the opposite ends of the spectrum is manifesting itself in the Total Expense Ratio (TER) that is now more visible than ever for the client.

The adviser expects compensation for the delivery of advice and the continued oversight of the client portfolio and the investment manager expects recognition for the value that they can deliver in terms of investment growth. It is clear that the client needs both elements. However, it is not clear how the mix shall be derived.

In the end it can only work if the portfolio manager is holding up their end of the proposition by demonstrating a clear foundation for their services. James Bateman sums it up well, A Good Portfolio Manager should never be a Cowboy Builder.

Is Straight Through Processing (STP) Possible?

Each of these articles, while focused on either end of this spectrum emphasises the importance in method and discipline for advisers and investment manager alike.

We expect that this will be the theme that takes hold in the coming year as each side of the coin comes to rely on the other for the continuity of distribution and the suitability of investment performance.

In the end the investment manager thrives on the reliability of funds under management, which means that the client has to be matched clearly with their investment strategy. At the same time the adviser needs to be sure that their client will not be victim to unseen risk accumulation and portfolio drift.

We have talked extensively about the need for each adviser to have a robust investment methodology at the heart of their client services. This can be achieved in many ways but will probably involve an element of outsourcing and reliance on an investment manager.

What is most relevant in this process is that the adviser understands what the manager has been asked to achieve on the part of the client and ensures that this continues to happen. This places a reporting burden on the investment manager to ensure that they continue to adhere to their mandate.


If the adviser and the investment manager can achieve an even balance in the management of the processes associated with the client portfolio then there is scope for a decent reward on both sides.

The key to this process is communication and managing respective responsibilities. You can throw all of a budget you have at internal systems and controls but if you don’t have a strong handle on the third party relationship that you rely on then you will continue to run the risk of failing to meet your clients’ needs.

We expect the tension between adviser and investment manager fees will lead to the greater alignment of client services over the next year. So if you think you have crossed the line with qualifications and an hourly rate on January 1st, it may well feel like turning a corner and seeing the next mountain.

Keith Reid
Keith Reid
Keith’s training as an accountant and auditor has emphasized the importance of evidence in all good decision making process. The ability to monitor management processes effectively is a key to making the most of business opportunities. Both Keith and Gerry believe that this priority for capital preservation is the common principle that sets the framework for any sound investment strategy or business model.