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Increase in advice firms using third parties to run their investments

27 April 2020

Research by FE fundinfo published in its 2020 Financial Adviser Survey*, has revealed that advisers are increasingly turning to third parties to manage their investment propositions, with 57% now using a third party model, up from 50% last year.

Rob Gleeson, head, FE Investments (pictured), said: “It’s not surprising that IFAs are turning to third party providers. Many recognise that they are not experts in fund selection, so prefer to concentrate their time on providing due diligence around those that are.”

Retirement planning was identified as a particular potential growth area for advice firms going forward, following the FCA’s proposal for retirement pathways. Nearly half (48%) of advisers now have a dedicated retirement proposition, versus 34% last year.

Despite the positive findings, advisers continued to face the challenge of rising costs and increased regulation. Over eight out of 10 (85%) advisers said their operational costs had increased over the last 12 months and over half cited cost and regulatory burden as their greater business concerns.

Among the main costs affecting advisers, staffing costs were found to be the biggest concern for a third (33%) of respondents and 27% cited professional indemnity insurance. Just over a quarter (26%) listed reporting and regulatory concerns, while 15% said rising technology costs.

Elsewhere, environmental, social and governance investing was shown to be growing in popularity, with more than half of advisers already incorporating ESG factors into their investment propositions and a further 37% planning to do so shortly. However, FE Investments said there remains some confusion about ESG investing. Just over a third (36%) of advisers said demand was being driven from investors themselves, while 62% of advisers said they don’t believe their clients understand what ESG investing involves.

Mikkel Bates, regulation manager, FE fundinfo, called for greater clarity.

Bates said: “Investors may have a broad sense of what ESG investing involves, but it is unlikely that many have considered the practicalities of how, for example, an environmentally-friendly investment may not be sustainable, or vice versa. There is a huge difference between how ‘responsible’, ‘ethical’ and ‘sustainable’ investing is perceived and as an industry we must do more to provide clarity and transparency.”

* The 2020 FE fundinfo Financial Adviser survey was conducted throughout November and December 2019.

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