Investment uncovered

Neil Jefferies, head of financial planning at Adroit Financial Planning, discusses DFM panels, the needs of clients and managed portfolios

Is your approach to investment management in-house, outsourced or a combination of both?

Outsourced. We used to have an advised proposition in-house and that was something that my predecessor was doing. He had spent time meeting fund managers, fund reps and thinking about asset allocation. I think you‘re taking on too much if you have a lot of clients and the markets move. And how do you justify which one of thousands of funds to use? IFAs are financial planners, not investment experts.

So I made the decision to outsource straight away when I took over in December 2015, because my remit was to grow the business. I didn’t think the advised proposition was appropriate for managing risk to the business; I didn’t think it was scalable or sustainable.

When a DFM does research, the reports run into pages and they can spend 10,000 hours on these a year. That’s massively more than an IFA can do.

What investment options do clients have?

It’s all about the needs of the clients – the complexity of their needs and what they are trying to achieve. We specialise in personal injury and court of protection work, so we regularly deal with cases that run into millions. For people whose claims are less than £150,000, we have just launched a non-advised platform, Adroit Direct, where we use TAM Asset Management.

For other clients, if their needs are simple and they have less than £300,000-£400,00, managed portfolios solutions are appropriate. We use managed portfolios offered through the Fusion platform, but we don’t want to shoehorn clients into managed portfolios as too much of that goes on.

In theory, anyone can have managed portfolios, but for some there is potentially a capital gain tax issue, and bespoke solutions are appropriate where investments are more than £400,000. Clients may have a special target date in life – for example, they may need money in five years’ time to buy new prosthetics or they might want to change their car.

If people need solutions outside of that, such as an offshore bond, we tend to go off platform with threesixty. We partner with threesixty for anything where we are not using our DFMs or a bespoke structure. We use its research to go off panel – there’s no point in doubling up our efforts if threesixty has already done the research. We use Dynamic Planner risk profiling, as when it gives you a risk level, it also gives you a solution as part of the process. If we think that is more appropriate than other solutions, we will see what is on the threesixty panel and use that as the basis of our research. But those cases are few and far between.

Which discretionary fund managers and platforms do you use?

We have a panel of DFMs. When I joined Adroit, I started doing due diligence as there are lots of DFMs out there and we needed to narrow them down. We looked at our clients and drew up our criteria, such as financial security and balance sheets, is it a listed company (with more transparency) and does it have experience in Court of Protection work? We loaded that in to Defaqto and did further due diligence on the ones that dropped out of the bottom. We do due diligence annually, but review our DFMS quarterly.

The DFMs we currently work with are Brooks Macdonald, Quilter, Canaccord and JO Hambro, and for investments below £300,000-£400,00 we use managed portfolios offered through the Fusion platform.

When I joined Adroit, it used five different platforms. I thought ‘Why go to all those platforms?’ In the end, after quite a lot of research, we went with Fusion as it has 40 of its own managed portfolios and the cost is really low – but not so low that you’re just putting clients in trackers. The bespoke DFMs are not on a platform as I don’t see the point in those clients paying a fee for that.

What are your thoughts on using active and passive funds in client portfolios?

I guess there is a place for both, but I’m not a big fan of putting clients in trackers and justifying it by saying the costs are really low. I think that’s a bit of a cop out. We don’t get involved in investment management decisions – we leave it to our investment partners.

Clients are getting professional fund management which can be tailored to what is happening in their lives and we don’t have to keep pestering them to sign stuff. It’s also a tax-efficient way of doing it for them as they get a CGT allowance to use up and they can automatically use their Isa allowance each year.

The benefit to the business is that we don’t have to use our resources doing lots of research and asking clients to sign bits of paper As I said earlier, I don’t think IFAs are investment experts – it leaves you open to accusations of not doing adequate research and not knowing enough about markets and assets.

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