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Interview: With 7IM’s Tom Sheridan and 
Justin Urquhart Stewart

Rob Kingsbury spoke to Tom Sheridan and 
Justin Urquhart Stewart of 7IM about the key issues for advisers looking to ensure the right outsourcing partner to fit with their particular business model

“The good news is advisers have never had so much choice; the bad news is advisers have never had so much choice.” Justin Urquhart Stewart

Rob Kingsbury (RK): With the increase in investment outsourcing among advisory firms
the number of providers targeting the market has increased dramatically. What issues is this causing for advisers looking to outsource or to switch providers and how can advisers ensure they get the right partner for their business?

Justin Urquhart Stewart (JUS): The structure of advisory business has changed. RDR has seen advisers review their businesses and justify the structure they want to run for their clients and to establish the kind of service they need to support that. There is a breadth of choice in terms of investment outsourcing

that wasn’t there before and by looking at the different types of discretionary services that are available to them advisers now can be far more focused in the service they provide to their clients.

What we’re also seeing, and probably for the first time, is the ability for advisers and investors to see exactly what they are paying for the various elements of the investment process. In the past, frankly, there were an awful lot of hidden charges. Now all that is far clearer.
 And the other issue here is that to work properly with any outsourced partner you’re going to need a close, trusting relationship. Without that trust there is always going to be a divide. To work well these relationships – whether they are running a model portfolio or full discretionary service – should be partnerships, both focused on the financial goals of the end client.

Tom Sheridan (TS): There are so many pressures on advisers these days as a result of RDR and regulatory and compliance issues, that it makes sense for advisers to take the outsourced route, because the fundamental need that discretionary management delivers on is the efficiency of time and effort.

Having undertaken all the financial planning elements what advisers are looking for is a steady, solid, robust, predictable, cost effective solution for their clients’ investments. So what we’ve created is a group of portfolios that have predicted levels of return over the medium- to long-term, which enables advisers to put the data in to their cashflow modelling software and show the client the cashflow analysis based on some logic.

JUS: Trust is the key word here: clients want to trust that their money is going to be looked after and that means the adviser has to find an investment outsource provider that they can trust.

TS: Another element that is taking greater prominence in adviser/client thinking is cost. We’re expecting a lower return environment over the next five to ten years given the level of economic activity and the fact the West is having to pay off all of its debts. As we move further into that environment the cost of a portfolio is going to be much more important. One way to reduce cost is to get the asset allocation right and implement it using passive instruments.

JUS: One other key issue that the adviser should think about is whatever partner they choose to use, what else can that partner bring to their business? It’s not just about running the money – what information is provided to the client, in what format, how they can access it, is it in the right language so that they can understand it? Is it a partner that will help them grow their business?

TS: Discretionary management has changed over the years. Previously the image the
term discretionary manager conjured up was a stockbroker in a smoke filled room using a range of equities, some gilts and the odd foreign fund. Those days are long gone. At 7IM, for example, we now offer institutional-style management that is very broadly diversified in terms of asset classes and which you can access either as a service or as a product.

JUS: By service we mean help with tax issues, explaining what’s going on, making sure the portfolios are fulfilling
what the client really needs and giving the adviser all they need to advise the client. That service will vary from client to client and so will have to be adjusted depending on whether the client is an individual, or a family, charity or trust, and whether there are other professionals such as lawyers and accountants involved.

TS: Using bespoke products or portfolios is about moving away from the old model where one person gave the advice and also did the investment, where you could end up with very different results for different clients even though you started from the same initial question or need. A model that is going to be harder to justify to the regulator. Now we have building blocks that make up a portfolio – income, growth, cautious, balanced even personal injury – all can be used to create the right portfolio for the client. The components of the products are centralised and unitised in order to deliver the consistency of performance that we spoke of before.

JUS: It’s about delivering institutional calibre portfolios
– bringing in elements that aren’t usually available in the retail market. Using certain elements of derivatives not to create greater risk/return but to help put greater structure and discipline into the portfolio, or making sure foreign currency
is properly controlled because that is an area of risk that can be over looked, especially in
the old model of discretionary management. Now, we can create modern, institutional- style models that can be brought through to the retail market through the professional planner.

To watch the full interview go to: Video/Audio > Business

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