Our industry is built on innovation and the willingness to support and nurture new ideas.
And as fund management houses continue to launch a steady flow of new investment vehicles, it is perhaps worth remembering the inspiration for many of these funds come from the adviser end of the market.
Operating at the frontline of client requirement and expectations, advisers are attempting to build broad asset allocation strategies against a backdrop of day-to-day client funding requirements like pensions and school fees. So it is unsurprising they have a clear idea of the kind of risks the end user wishes to take, as well as the returns they require. This knowledge provides a rich seam of knowledge for the canny fund management business to mine.
What is more, once an idea for a fund has been turned into a functioning vehicle, it is the adviser who backs it with client money. In the case of start-up businesses, this shows considerable belief in the firm, given it is the adviser and not the asset manager who would have to explain why things have gone wrong.
Arguably, the model works well. Advisers get a say in the products and can create better portfolios for their clients while the managers attract assets, allowing them to build in size and attract talent.
However, there is an issue here. Advisers are having to change their models in the face of RDR and are watching to see how asset managers remodel their businesses to take account for the shift in distribution.
There is evidence they are keen to see their support for innovative new start-up investment houses rewarded in more long-term fashion.
This paper believes business models will have to change and it is those who adapt with speed and innovation who will go on to prosper.
The launch last week of Distinction Asset Management, which will have up to 65% of its equity owned by supporting advisers, is one such model. It requires an adviser to take a long-term view on the prospects of a fund, its house and its managers. It closely aligns the interests of the manager, the adviser and the client because it is predicated on the ability to choose and hold good fund managers.
If this particular model is to work it must be completely transparent, leaving the end customer in now doubt as to the holdings an adviser has in a fund manager and how that holding will be impacted by their investment.
But then transparency and the alignment of interests should be a minimum requirement for stakeholders in our industry.
