Smaller advice firms are feeling the crunch when it comes to assessing and monitoring potential and current managed portfolio service providers, according to research from Quilter Cheviot and NextWealth.
The poll of 200 financial advice professionals found that while 26% of advice firms have no set timeframe for reviewing investment partners, smaller firms are experiencing time and resource constraints more than their larger peers.
Time constraints was one of the biggest challenges faced by single adviser firms (30%) in conducting thorough due diligence on outsourced investment partners, with 28% also listing the cost of the exercise.
For firms with 2-5 advisers, 32% said time constraints and 23% cited the cost. For firms with between 6-10 advisers, only 15% selected time constraints as one of the biggest challenges, while 18% said it was the cost of carrying out due diligence exercises.
As a result, larger firms were more likely to have a defined process for monitoring investment firms after their selection. The vast majority (85%) of 6-10 adviser businesses and 86% of firms with more than 10 advisers have established a partner monitoring process, while 65% of single adviser firms do not have a defined process in place.
The survey also revealed that larger firms are most likely to have started working with a new partner in the last 18 months and are also those least likely to have stopped a partnership. Among the reasons cited by smaller firms for not switching investment provider was the prospect of adding even more time to the process if changes were required, for example fund switches and transfers.
David Butler, head of business development at Quilter Cheviot, said: “Due diligence can be an arduous exercise, but it may also be one of the best investments you can make for a client. Clearly the market environment just now means advisers, and especially smaller firms, are being constantly squeezed from a time and resource perspective, so it is understandable if they cannot dedicate the resource they would like to the exercise.
“However, it is vitally important that advisers have trusted investment partners and that you can explain your decision-making for choosing one provider over another to a client. While it can be laborious, the more you do it, the quicker it should become as processes and data gathering become embedded in how you operate.”
Butler said advisers should also ask providers to help ease the burden.
“If a managed portfolio provider does not have easily accessible and digestible due diligence documents, then questions need to be asked about how they would provide the adequate information on a client’s portfolio,” he added.
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