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Whether it’s a summer holiday or a client’s investment proposition you’re choosing, it’s all about the options

Steve Owen

Steve Owen, Head of Elevate Platform Proposition at Standard Life, considers how a client investment proposition can best be shaped and compares the advantages and disadvantages of the investment options available.

It's amazing how time flies.

We're already in June and most of us (if we're lucky!) will be thinking about summer holidays around the corner.

You may be planning some time out on the beach, up a mountain or on a city break: we all switch off from the office in different ways.

Whatever holiday option you choose that's right for you, a break also offers a chance for reflection and, certainly for me after a few days away, my mind will wander back to work, and how Elevate can continue to support you with the issues you face.

And recently when I've been out and about, the subject that has cropped up most often is how advisers can go about developing their client investment propositions. It's an issue that continues to divide opinion as there are so many conflicting ideas around how to best shape an investment proposition around client outcomes.

Decisions, decisions

If you're thinking about your client investment propositions at the moment, it's important to first take a step back and consider the big picture. As a start, we know that three factors drive client outcomes: tax treatment, the charges taken and investment returns.

Tax treatment and charges are factors that can be planned for. Investment returns can't be planned in the same way: a relatively small swing in returns can mean a big difference in the level of a client's wealth if they are enforced to cash in when markets are down, which may be the case when investments are used to generate a monthly income.

So it's really important that investment decisions are made to meet both your client's short-term income needs and their longer-term goals. Part of that investment equation is managing downside risk and that's where sequence risk comes in. Using a sequence risk approach to investing can positively impact the sustainability of your client's income. You can consider how income needs can be met over the short term with lower-risk investments, while planning higher-risk investment strategies for returns over the longer-term.

Different investment options: the pros and cons

With such a wide choice of investment options available, from full discretionary managed solutions through to in-house options and multi-asset funds, how can you decide on more suitable investment choices for your clients to meet short-term needs and longer-term goals?

For some time now, one of the trends we've seen on Elevate and one of the things advisers ask me about is whether or not to outsource the investment selection

For some time now, one of the trends we've seen on Elevate, and one of the things advisers constantly ask me about, is whether or not to outsource the investment selection. The trade press is full of opinions about the best outsourcing route to take, whether that's a full DFM service, a DFM model solution or multi-asset funds.

Certainly, keeping the investment selection in-house can add cost and risk to your firm, and you need to look at the advantages for your business and whether you have enough clients to offset the cost.

If you choose to outsource, it's not always as straightforward as it may seem and you really need to consider if this is the best option for your client. Outsourcing to a full, dedicated DFM firm may be an attractive choice, but again it brings with it a level of cost and complexity which many of you will want to avoid.

Multi-asset funds are the simple solution in that most are available on platforms and regular rebalancing is carried out by the investment manager rather than it being your responsibility. However, multi-asset funds can either help or build up your client's eventual CGT liability over time, depending on their circumstances. One other drawback advisers tell me about is how to make sure clients are satisfied with holding a single fund: the client can often think that holding one fund is too simple when they are paying for professional advice.

In-house, own model portfolios can be a cheaper alternative to multi-asset funds and they do allow you to keep full control of the investment proposition. However, if you don't have discretionary permissions, the admin and time involved getting client agreements, as well as researching and justifying the investment selection, can all be a bit of a headache. Choosing a discretionary model solution, meanwhile, means less admin but obtaining discretionary permissions is an expensive business.

Another investment option is to outsource to a DFM model portfolio solution. Not only can this help with your client segmentation for regulatory purposes, but you can focus exclusively on financial planning. This option may look more expensive but there are low-cost DFM solutions out there which can help reduce cost and risk in your business.

There is no right or wrong answer

In my opinion, there are pros and cons to all these investment approaches and there is no right or wrong answer about how a client proposition should be developed. It depends on so many factors: client needs, the level of investment experience in your firm and how risk levels for short- and longer-term investment goals are managed.

But we all know what the graph of a typical diversified portfolio looks like: over the medium term, a diversified portfolio can significantly outperform cash. So it follows that taking a ‘mix and match' approach to investments and managing several propositions for your client could be the answer. This is applicable when your clients are in decumulation: a mix and match approach can help them achieve outperformance over the medium- to long-term, while also helping to ensure minimal fluctuations in the value of assets used to pay them an income in the shorter term.

And using a combination of approaches, where lower-risk investment solutions are kept in-house to meet income needs - either single asset class or low-risk multi-asset funds - while more risky investments are outsourced, is an approach that can reduce cost and complexity and can also help increase efficiency within your firm.

Elevate can help provide you with a solution

Elevate has offered DFM model solutions for some time. However, we've recently made a step change in how this capability works in response to a desire for better DFM capability on the platform.

Now it's even easier for you to invest, disinvest and change investments without having to contact the DFM. It means you can access portfolios in the same way you access a multi-asset fund and you can keep the same level of control over your client's investment as you would if you were trading in funds.

The first model portfolio to launch on Elevate using the new technology is MyPortfolio and over the coming months, we'll be adding more DFM model portfolio solutions to the platform.

Why holidays really are a good time for reflection

Shaping an overall investment proposition that works for clients is, like most things in life, a question of balance.

I'll continue to ponder this topic over my summer break and perhaps over your holiday, however you've chosen to switch off, you'll have the time and space to think about how your client investment propositions can be developed and how Elevate's new DFM model solution capability may be able to help you with that.

Find out more about MyPortfolio.


The value of investments can go down as well as up and could be worth less than originally invested. Laws and tax rules may change in the future. The information here is based on our understanding in June 2019. Your own circumstances also have an impact on tax treatment.

The views expressed in this blog should not be regarded as financial advice.