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The trend towards outsourced portfolio management 

Justin Taurog, Managing Director, VitalityInvest

Published: 04/03/2020

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Advisers are facing a number of challenges, from increasing regulatory pressure to the changing needs of clients and an ever-expanding range of investment options. VitalityInvest’s new range of actively managed risk-profiled funds have been created specifically to address these challenges, helping advisers to provide suitable investment solutions to their clients.

Today’s financial adviser is grappling with a number of challenges to their business models. Of particular concern is developing fund solutions that fit within their advice process and address their clients’ needs. While many advisers still offer in-house model portfolios, in recent years we have seen an increase in financial advisers delegating the creation and management of client portfolios to third-party providers.

There are several forces fuelling the trend towards outsourced portfolio management.

Increasing regulatory pressure for advisers

Regulation appears to be weakening the case for in-house solutions. The Retail Distribution Review (RDR) imposed a more arms-length relationship between advisers and fund managers. The consequence was that advisers were compelled to take a whole-of-market view when selecting and monitoring managers.

The Markets in Financial Instruments Directive (MiFID) II and the FCA’s Product Intervention and Product Governance (PROD) rules have also ramped up the pressure on advisers to demonstrate the suitability of their advice to their target market. This has led many advisers to focus more on their advice process, and in turn spurred the creation of products that can be conveniently matched to client needs.

Expanding range of investment options and the changing needs of clients

Advisers are faced with an ever-expanding universe of asset classes, funds and fund managers, and evaluating the relative merits of the products available – and how best to use them in a portfolio – is an increasingly complex and time-consuming task.

At the same time, clients are approaching retirement with fewer guarantees in place and the prospects of extended longevity. Their need for financial advice and guidance has arguably never been greater. Advisers are weighing up whether their time, resources and particular skillsets are better spent on areas where they are able to clearly demonstrate their value to clients, such as understanding their clients’ objectives and tolerance for risk, and providing financial planning and coaching services.

Uncertain market outlook and fund manager risk

The complexities surrounding asset management is also peaking. In the last week alone, we have witnessed the effects of a virus outbreak on markets, and yet prior to this we have seen a prolonged bull market. This provides a compelling case for delegating portfolio oversight to specialist providers. The uncertain outlook and likely continued market volatility also means advisers are looking for actively managed solutions where providers are able to adapt their portfolios to build in greater resilience. Recent high-profile fund manager meltdowns, such as Neil Woodford, have also caused advisers to seek out providers who can demonstrate the reach and due diligence of their manager research capabilities.

Evaluating portfolio outsourcing options

Fortunately, there are many options available when it comes to outsourcing portfolio management. Differentiating the good from the bad can be tricky though. And determining value for money is another matter, with several providers imposing layers of charges and variable underlying fees that make it difficult to assess the true cost of a solution.

Addressing these challenges - VitalityInvest’s risk-profiled fund range

Mindful of these issues, VitalityInvest has recently expanded its range of risk-profiled fund solutions. We believe that our risk-profiled range meets the needs of the majority of mass affluent and high net worth clients, and enables advisers to demonstrate the suitability of their fund choices. Our funds cover a broad spectrum of client risk profiles and cater to a variety of investment approaches, from our cost-effective VitalityInvest Risk Optimiser (VIRO) funds which are made up of passive building blocks, to our actively managed Global Multi-Manager funds.

Introducing our new VitalityInvest Global Multi-Manager and Blended funds

Our Global Multi-Manager fund range is offered in partnership with SEI Investments (SEI), one of the world’s largest manager-of-managers. We have also launched our Blended fund range, which is managed to maintain an equal weighting between the Risk Optimiser funds and Global Multi-Manager funds that correspond to a specified risk profile. In developing these ranges, our guiding principle has been to address the challenges facing advisers.

The partnership with SEI uses their institutional expertise to bring an innovative solution to your clients’ portfolios. By leveraging their extensive resources, experience and rigour behind their investment process, this can mitigate the risk and complexity involved for advisers when creating fund solutions. SEI’s team of 120 investment professionals, located over four continents, are backed by a pedigree of 30 years managing multi-manager mandates. Their size and reach means they have an extensive investment manager universe from which to choose the best managers. And their resources have enabled them to develop a deep understanding of this universe and identify particular areas of manager expertise from which to construct their portfolios.

Moreover, through their vast scale (they manage around £268 billion in assets*), SEI are able to secure preferential access to the world’s best managers at low cost, with these savings then passed through to clients. By structuring our solutions as funds, we have maintained the clear separation between client, adviser and provider. And we have ensured our charges are clear and predictable by creating a single, fixed ongoing charges figure (OCF) for our funds.

In times of market uncertainty, advisers can have peace of mind that their clients’ money is being managed by these world-leading active managers, offering protection from market downturns and helping to make sure clients’ investment journeys are more consistent, whatever stage of the market cycle.

If you would like to find out more about our risk-profiled solutions, please contact your Vitality Business Consultant or visit

*Source: SEI, correct as at 31 Dec 2019.
VitalityInvest is a trading name of Vitality Corporate Services Limited. Vitality Corporate Services Limited is authorised and regulated by the Financial Conduct Authority. 03/03/2020 | This article’s view is based on the law, practices and conditions as at the day of publication. While we have made every effort to ensure they are accurate, we accept no responsibility for our interpretation or any future changes. |
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