‘This isn’t dating, it’s a marriage’: Choosing the right investment provider

Cultural alignment and scalability to last long-term are two key criteria for advisers when selecting the right outsourced investment provider, says this expert.

Appearing on a panel at the Institute of Managed Account Professionals’ (IMAP) Advice in Action 2024 conference in Sydney, the discussion turned to how to choose the right provider as an adviser looking to outsource their investment decision-making.

Brent Bevan, head of investment consulting in managed accounts at MLC Asset Management, identified one of the critical factors: being the right cultural fit.

“If you’re an adviser, you’re making the call to say, ‘I want to outsource either part or all of my investment decision-making,’” he explained.

“Culturally, it’s very important for advisers, practices and licensees to understand that if you’re going to partner with somebody to do this – and I’ll use the word partnership because that’s exactly what it is; this isn’t dating, it’s a marriage – you need to make sure that you’re partnering with someone who you align with and whose investment processes and philosophies you can get behind.”

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While the adviser doesn’t have to agree with all aspects of an asset manager or consultant’s investment philosophy, having a clear cultural alignment is critical, Bevan said.

“It should be someone you can trust so you can say, ‘I understand that’s what you do on a day-to-day basis as an asset manager, that’s what you live and die by because you don’t have another five business lines that sustain you.’”

With culture being “incredibly important to understand” yet difficult to analyse and pin down, Bevan encouraged advisers to spend time with several providers to understand if they are the right partner for them.

Another essential piece to the outsourcing puzzle is ensuring that your provider is scalable enough to last in the long term, said the head of investment consulting.

“The idea of profitability applies to everyone in the industry. It doesn’t matter whether you’re an asset manager or a platform; the mass consolidation that we’re having is occurring for a reason because the hurdle to be scalable is growing even higher.”

This particularly applies to managed accounts within the asset management space, Bevan explained, with many of these solutions still in their infancy days and not yet near the scale that they need to be.

Managed accounts continue to grow in popularity, with 56 per cent of advisers currently using them and a further 19 per cent saying they are “potential users” of the vehicle, according to an Investment Trends and SPDR research.

He continued: “It’s super important for licensees and practices who are thinking about this market because if you’re entering into a partnership and those individuals are now going to be running 60–80 per cent of your funds under management, your business is intrinsically linked to their success.

“You need to be mighty sure that they have the scale and robustness in their business to be here for the next five to 10 years.”

Money Management recently spoke with Irene Guiamatsia, head of research at Investment Trends, who observed a contrasting trend: the rise of “insourcers”, advisers who view product selection as essential to their client value proposition.

Some 35 per cent of advisers identify as insourcers, while the other key segments include high modifiers (29 per cent), medium modifiers (21 per cent), and outsourcers (16 per cent).