Running your own advisory model – as simple as ABC?

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In the second in our series of blogs from voices across the industry, Roy Thompson from LGT Vestra takes a look at in-house advisory models. If there’s an industry-related topic you would like to discuss, we’d love to hear from you. Drop us an email and let’s talk.

Running advisory models in-house has been a popular approach to date. But with heightened pressures on adviser firms, attitudes are beginning to shift away from this more traditional model.

So, what is driving these pressures?

Increased regulation

Increased regulation within the financial services industry has altered the landscape of the advisory world. The recent implementation of MiFID II has resulted in a range of changes, including the way adviser firms conduct business with clients. Many existing standards of best practice are being formalised into explicit regulatory requirements.

Two key changes are that suitability must be assessed and a suitability report issued where investment advice has been given, irrespective of whether there has been an actual transaction. In addition, where ongoing services are being provided, suitability must be reviewed and re-confirmed on at least an annual basis.

Potential conflicts of interest

While it’s true that advisers with discretionary permissions will be able to apply decisions quickly without receiving permission from individual clients, there are many hurdles to pass before these powers are granted by the Financial Conduct Authority (FCA).

Not only does an application for discretionary permissions change an advisory firm's business model from financial advice to both advisory and investment manager, there is also a 'conflict of interest' risk. In order to gain discretionary permissions, IFA firms must also provide the regulator with detailed rationale as to why they wish to vary their existing permissions.

Running bespoke model portfolios in partnership with a Discretionary Fund Manager (DFM) offers an alternative in light of these issues. DFMs such as LGT Vestra have seen a rise in the number of advisers wishing to get involved in the investment process and, in response, have been working with more IFA firms to tailor their investment offerings. These types of bespoke model portfolios allow advisers to maintain control over their model portfolios and can help mitigate risk while building a scalable proposition.

It’s also important to note that if the adviser wished to terminate the relationship, the selected DFM can be removed immediately as it is ultimately acting as the adviser firm’s model portfolios.

Building a joint investment committee

Building 'joint venture' white-labelled portfolios provides both a strategic and tactical solution which removes the need for advisers to carry out day-to-day management of portfolios. And by applying its discretionary powers to an adviser’s mandate, a DFM ensures seamless execution of portfolios.

Similarly, by engaging in a joint investment committee on a quarterly basis, the DFM and adviser can agree the current strategy and any portfolio changes, with input from a rigorous investment process and dedicated research team. The adviser can continually oversee and mitigate regulatory and investment risk, while also monitoring ongoing charges for the portfolio constituents.

Ultimately, bespoke model portfolios can help strike a balance between having an advisory license and access to the influences of a DFM. And, most important of all, this balance opens up the opportunity for the adviser firm to focus on its core capability - financial planning.

To find out more about Vestra, visit

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The information contained in this page is for professional Financial Adviser use only. If you are a private investor, please visit the Private Investor section or contact your Financial Adviser for more information.

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Important information 
LGT Vestra LLP is authorised and regulated by the Financial Conduct Authority. Our regulation details are set out in the FCA register: Firm Reference No: 471048. Registered in England and Wales: OC329392. Registered office: 14 Cornhill, London, EC3V 3NR. This article is for information purposes only and is intended for professional financial advisers only. The wording contained in this document is not to be construed as an offer, advice, invitation or solicitation to enter into any financial obligation, activity or promotion of any kind. Any information herein is given in good faith, but is subject to change without notice and may not be accurate and complete for your purposes. This document is not intended for distribution to, or use by, any individual or entities in any jurisdiction where such distribution would be contrary to the laws of that jurisdiction or subject LGT Vestra LLP to any registration requirements. Investors should be aware that past performance is not an indication of future performance, the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invested.

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