Imagine a classroom where the same subject is taught to both beginners and advanced students—a useful metaphor for the challenge that private fund managers are facing as they democratise their offerings. It aptly captures the tension between simplicity and sophistication in the investment landscape as private markets evolve to accommodate a broader investor base.

The rulebook protecting retail investors is vast and risks creating a communication gap for more financially savvy investors who crave detail, nuanced information, and access to higher-risk, illiquid assets.

This dilemma is only accentuated by the regulatory pressures that require firms to ensure their communications are both clear and comprehensive – a balancing act that becomes more precarious as the investor base diversifies.

Expanding access to private markets

The shift in the private assets has led to the introduction of the UK’s Long Term Asset Fund (LTAF) and the European Long Term Investment Fund (ELTIF). These vehicles are intended to make illiquid alternative investments accessible to a wider audience.

While ELTIFs gained traction quickly, LTAFs are now growing in popularity. Major asset managers including Schroders, Aviva, and BlackRock have launched such funds, with further announcements expected in 2025. These developments reflect a significant move toward opening up private markets to retail investors, although challenges remain.

The Financial Conduct Authority (FCA) has been proactive in addressing these barriers. It’s chief executive Nikhil Rathi highlighted in October the need for further innovation in fund structures to meet the demand for long-term investments while ensuring robust safeguards for retail participants.

Balancing transparency and complexity

To attract retail investors, asset managers must embrace Consumer Duty and offer clear, understandable information for retail investors while ensuring they also produce the depth of information that their institutional audiences demand.

Even within the retail investor cohort, oversimplification is a concern. In their effort to make communications accessible to all, firms risk diluting the details. Simplified content may omit important nuances and industry terminology, akin to teaching only the basics when advanced investors are ready for more.

The FCA’s forthcoming review of its rulebook, including potential overlaps between existing rules and the Consumer Duty, highlights the need for firms to strike this balance effectively. The focus is on ensuring that retail investors can make informed decisions without being overwhelmed by excessive complexity or legalese.

However, achieving this clarity is easier said than done. The demand for transparency can, ironically, result in overwhelming documentation, with dense risk disclaimers and technical definitions that blur critical points.

At worst, regulation could slow the democratisation of private markets, as managers shy away from offering products to new sectors with enhanced fair value and customer outcome requirements.

This comes at a time when the UK government seeks to boost investment in UK businesses—a goal that fund managers could support. The LTAF, after all, was partly introduced to bring more capital to entrepreneurs, as well as to widen access to private investments.

The governance imperative

To navigate these challenges, firms aiming to meet retail investor regulatory obligations must embed strong governance frameworks. These should mandate continual product and service assessments, enabling asset managers to prove their offerings deliver fair value and align with consumer needs. Regular reviews, as highlighted by the FCA, will be crucial in ensuring funds meet evolving market expectations.

This regulatory responsiveness requires a consistent focus on insights from FCA reviews, particularly concerning fair value, and a commitment to using data to confirm that products meet customer expectations. Firms that proactively engage with these insights will not only ensure compliance but also position themselves as trusted partners for a diverse investor base.

Charting a way forward

As the investment options for retail customers expand, Consumer Duty will play an increasingly important role in shaping the wider private markets asset management landscape.

Moreover, as private markets continue to mature, the ability to cater to a broader range of investors without compromising on quality or clarity will be a defining factor. Firms that are able to balance growth, innovation, and investor protection will be the winners in the democratisation process.

Last year, corporate bonds achieved stable returns and rocketed in popularity, following expectations of falling interest rates across most developed economies. As such, the asset class is entering 2025 at tighter spreads than markets have seen for some time, but also with more attractive yields as interest rates reached highs not seen in several years.

The performance of government bonds has been more volatile, according to industry commentators, and looks set to remain so. The election of Donald Trump as US president, combined with weaker economies across western Europe, means that while interest rate cuts are virtually inevitable, the timing and scale of them is relatively unknown.

Iain Buckle, head of UK fixed income at Aegon Asset Management, says: “We expect bond markets to remain volatile in 2025. The market currently expects a further 75 basis points of cuts from the US Federal Reserve over the next 12 months. The broader US economy still seems robust, however, and those 75 basis points of expected cuts could look optimistic if the labour market remains resilient.

“The political backdrop in the US will also drive volatility, given the market assumes a Trump presidency will lead to looser fiscal policy and higher inflation. We will learn more as he takes office, and the reality may not be what the market has implied. But it’s likely the style of his presidency will only add to the uncertainty and volatility in markets.”

David Knee, deputy CIO of fixed income at M&G Investments, agrees that Trump’s election will increase volatility across markets, as investors anticipate how his second administration pans out.

“The first Trump presidency showed what Trump said he would do and what he actually did was very different,” he reasons. “Bond markets will be watching for key policies such as tariffs, tax and immigration, which could potentially reignite inflation and limit the ability of the Fed to act, as well as add to already growing deficits.”

Over in Europe, Buckle says the outlook is “slightly more certain”. “Core European economies have been struggling for some time, negatively impacted by a weak Chinese consumer and growing competition from within China itself.

“We expect the European Central Bank (ECB) to continue to cut rates, with 125 basis points of cuts expected by the end of the year. It would take a further deterioration in the outlook for the market to price in further cuts, but that is certainly a possibility as we learn more about US tariffs early in 2025.”

To read more on the outlook for government bonds, credit, equities, emerging markets consolidation and Consumer Duty, visit the January edition of Portfolio Adviser Magazine

I started in the wealth management industry in the late 1990s and one of the most significant changes has been the diversification of the workforce. Back then, the industry was male-dominated, but today, Adam & Company is moving close to a 50:50 gender split, particularly on the investment management side.

Another major change is industry consolidation. In the past, there were far more boutique firms, but now the same larger brands dominate the market. While consolidation offers brand recognition and comfort to clients, there’s a delicate balance. Firms need to be ‘big enough to matter but small enough to care’.

We’ve worked hard to maintain our brand identity, especially in a regional context. Scotland is a unique market, and what resonates here doesn’t always align with what works south of the border. Understanding and respecting these regional differences is crucial.

Q: What is the investment topic most brought up by clients/investors?

The dominance of the US market. A few key companies often referred to as the ‘magnificent seven’ have had an outsized impact on the market, which has presented both challenges and opportunities. This trend also ties into the relevance of the UK market. Historically, benchmarks were heavily UK-focused, but that has shifted significantly over time, as the UK’s market has diminished in size.

See also: Wealth manager Q&A with Nji Lorimer: The human touch

Another area of concern for clients is economic data, especially around inflation and interest rates. Since Covid, there’s been an increased obsession with these figures, which has fostered a short-term mindset in a lot of investors. It is important to guide clients away from short-term noise and encourage them to focus on longer-term themes and diversification.

Q: What piece of regulation has had the biggest impact on your day-to-day role?

Regulatory focus on consumer value has had the biggest impact on wealth management firms. Twelve years ago, it was the Retail Distribution Review and now it’s Consumer Duty. It’s a huge piece of work behind the scenes, but it provides a very useful framework against which to judge yourself. It’s a positive move to ensure clients are being supported, given the right information, getting the right product and getting good value for money. Continuing to ensure we are delivering the right client outcomes is vital.

Another regulatory area that has a big impact day to day is anti-money laundering and Know Your Customer requirements. Educating clients on the importance of these checks and finding ways to make the process more palatable is key.

Read the rest of this article in the October issue of Portfolio Adviser magazine

The adoption of model portfolios by advisers has been a seismic change. This trend involves partnering with providers to deliver discretionary managed solutions for their clients. Whether it’s model portfolios readily available on platforms or tailored models built specifically for adviser businesses, the evolution has been remarkable.

Some providers have even set up new companies alongside financial advisers to manage these assets, marking a significant step change in the industry. This collaboration has not only enhanced the service offerings but also brought about innovative business models that are reshaping the landscape.

Q: What is the investment topic most often brought up by clients/investors?

Investors often focus on geopolitical risk, uncertainty and volatility, and how to position for these events. Ironically, by concentrating solely on these binary outcomes, one can inadvertently increase portfolio volatility, which is the opposite of what investors want to achieve.

The most important risk investors need to be aware of is shortfall risk – of not achieving their goals. By fixating too much on large macro events, investors can lose out to their behavioural biases, leading them to focus too much on the near term and neglecting the long-term objectives of their portfolio. Instead, we should focus on the diversification benefits of a portfolio, build it to weather the storm and avoid large macro calls that are very hard to get right.

Q: What piece of regulation has had the biggest impact on your day-to-day role?

It’s been more than a year since the introduction of Consumer Duty, which has resulted in a significant shift in how advisers decide to invest their clients’ money. Crucially, it’s led to a mass migration from advisory to discretionary models. This has required discretionary managers like us to adapt to help advisers with these challenges and become true investment partners – to essentially become an extension of their financial planning practice as their in-house investment team.

This has fundamentally changed, and will continue to change, not only the industry itself but also the interaction between advisers and discretionary fund managers. It’s driven by regulation but ultimately determined by the innovative solutions we provide to advisers.

Read the rest of this article in the December issue of Portfolio Adviser magazine

I have been working in or researching the investment industry since 2008. Clearly, there has been material change to regulatory regimes and product innovation in this time, but I would say one of the most significant – and underappreciated – changes I’ve seen is that there is greater tolerance, if not outright demand, for cognitive diversity within investment teams.

Risk-taking individuals have begun to realise the benefits that attracting a diverse team with both breadth and depth of experience can have on the robustness of debate and avoidance of group-think. This in turn leads to more robust products, decisions and, ultimately, client outcomes.

Q: What is the investment topic brought up most by clients/investors?

The topics of interest tend to ebb and flow with the market and what is topical in the news. Presently, we’re engaging heavily on the UK Budget and US election. This year in particular, with over 50% of the global population going to the polls, we’re seeing heightened market volatility that’s driving a lot of queries.

We’re using this as an opportunity to engage on our investment principles, which emphasise diversification and discipline, as well as our investment process, which looks past near-term election noise to potential policy impact on markets and valuations over the next three-to-five years.

Read the rest of this article in the November issue of Portfolio Adviser magazine

Customer vulnerabilities are a hot topic under the Consumer Duty regulation. The Financial Conduct Authority (FCA) wants better consumer outcomes for all customers, including those with a vulnerability.

Sharing information on customer vulnerabilities is one of the challenges to managing customer vulnerabilities and overcoming this would provide an important route towards better outcomes.

However, the sharing of vulnerability data is an area that needs to be treated with appropriate sensitivity and consideration for both customer privacy and the potential transient nature some types of vulnerability have.

Yet, there are several ways to achieve improved visibility that have the potential to remove the onus from customers and support the wider industry in collaborating to achieve better customer outcomes.

Vulnerable customers, vulnerable processes

When we talk about customer vulnerabilities, there are the more obvious permanent vulnerabilities applicable to every interaction with the customer, but also there are transient vulnerabilities.

Transient vulnerabilities are temporary and may only apply to one interaction. They may not be applicable for the next interaction. So, before firms get started on how best to support all customers, the baseline is constantly moving.

Identifying vulnerabilities and offering the relevant support is not straightforward – and this in turn has an impact on the customer in some form.

Firms tend to identify and capture support requirements manually. They use a marker or notes function in systems that can be easily missed the next time the policy is viewed. Worse, there’s an inconsistency across firms in the capture of information – perhaps born from fear of breaching GDPR and customer consent.

Different companies in different parts of the value chain identify and record vulnerabilities for their own purposes, without consideration for the wider customer journey. This creates blind spots. Each company is effectively starting from scratch in determining additional support needs.

Is this right? How can we better work together on this as an industry so that we can maintain, store and change this data?

Data sharing

Across the wealth industry, firms are currently working in silos. This is profoundly unhelpful.

Professionals in a firm might identify a vulnerability – recording and retaining that information only for their own use and future interactions with that customer.

In future, when a firm identifies an additional support need for a customer, they could capture customer consent to share this with other firms.

For example, out of all parties in the value chain, advisers will spend the most time with the customer, getting to know them and making recommendations based on personal circumstances. KYC processes will capture vulnerabilities, but these may not be shared with the platform.

Provided the adviser has the customer consent to do so, why would this not be part of the process?

This would be a positive outcome for the customer – reducing repetition at the next interaction and minimising unnecessary difficulties with the interactions and service given by the next company.

It may not be appropriate to always share transient vulnerabilities. Yet, if the customer benefits, and is happy for the information to be shared, sharing can help achieve the best outcomes.

Sharing data across the value chain can be done if the system capabilities support it. Application programming interfaces – APIs for short – are a massive enabler for this.

For those firms without such system capabilities, a consistent approach for recording and supporting vulnerabilities with best practice guidance could be a positive step, eradicating any uncertainty.

There needs to be a consideration for the relevance of the vulnerability identified, for example, an adviser may be aware of mobility issues when it comes to face to face interactions, but a platform with digital communication doesn’t need to account for this. Coupled with different standards applied when identifying vulnerabilities, consistency in data capture is also a consideration that needs to be overcome.

A centralised register

One option to overcome this would be a centralised register that enables firms across the value chain to add and store support needs. This would highlight a consideration of customer needs and not just those relevant to the transaction being undertaken.

However, the drawback with this system is if a customer wants to have their support needs recorded, the requirement is for the customer to log on to the register and add the details.

This is a good starting point but relies heavily on customers populating it. Adapting it so that firms can also push and pull data from it, with connectivity options to suit different technology capabilities, could prove a real asset in supporting customers with vulnerabilities.

Changing approaches

Transient vulnerabilities may be more difficult to get right but tackling this one step at a time and focusing on what additional support customers may need rather than their vulnerability, could open the door to helping the more complex scenarios.

Changing the approach in this way alongside centralising customer needs has the potential to solve some of the GDPR challenges that could be experienced.

Whilst a register would certainly need promotion, and investment, there are some existing materials we can build from such as the Vulnerability Recording Service (VRS) and the Experian Support Hub. The industry needs to start the conversation.

The major investment platforms have thrown a spanner in the works, refusing to change their processes on investment trusts and continuing to require that ongoing charges are declared in full, in line with the Priips and Mifid regulations.

The long-running campaign from, among others, William MacLeod, managing director at Gravis, wealth manager Ben Conway of Hawksmoor and multi-asset manager James de Bunsen of Janus Henderson, plus the AIC and Baronesses Bowles and Altmann, has managed to persuade the FCA, European supervisory authorities, UK lawmakers and lobbying organisations that the rules are flawed. But the platforms are holding out.

See also: AIC: Cost disclosure breakthrough does not apply to VCTs

Over the past few weeks, the Treasury has laid out plans to replace the EU-inherited Packaged Retail and Insurance-based Investment Products (Priips) regulation with a new framework, the Consumer Composite Investments (CCI) regime due in the first half of 2025.

In the meantime, the UK regulators have allowed ‘forbearance’ for investment trusts in the disclosure of charges under the Priips and MiFID regulations, allowing them to avoid a situation where they were forced to double-count their costs – once as an ongoing charge figure, and another through its impact on the NAV.  

The platforms have dug their heels in and many say they will continue to require the ongoing charge figures to be disclosed in the KID document as a minimum requirement.

Bestinvest has said it will continue to disclose an ongoing charge figure for all investment trusts on its platform. It says it is waiting until the UK retail disclosure framework under the Consumer Composite Investment (CCI) regime is published.

Hargreaves Lansdown will continue to require the European Mifid template “to be completed as a minimum standard”. It says: “We are working closely with the trusts on our platform, the regulator and trade bodies to find a solution that fulfils all our regulatory requirements including Consumer Duty in a way that is transparent and fair to clients” 

AJ Bell says it is aware of the FCA forbearance statement and has been monitoring any updates closely, “as well as engaging with industry trade bodies and product manufacturers in order to reach an appropriate solution that is in the best interests of customers.”

It adds that it is reviewing the new rules, though says “it is important that customers have access to accurate costs/charges information.” Fidelity International has said it is actively engaging with investment trusts to find a way forward.

The risk is that investment trusts that take advantage of the FCA forbearance rules are ‘deplatformed’. This is not a theoretical risk – in late September, Fidelity International barred four investment trusts from taking new investors on its platform: Shires Income, Majedie Investments (although this has since been ‘unbarred’ as of last week), Downing Strategic Micro-Cap and JPMorgan Emerging Europe, Middle East & Africa Securities. AVI Global, MIGO Opportunities and Patria Private Equity were already barred.

See also: Could one spreadsheet column solve the cost disclosure crisis for trusts?

AJ Bell has taken similar action for Bluefield Solar Income and Chrysalis Investments – though has since reinstated Chrysalis – while Hargreaves Lansdown has put restrictions in place for trusts such as Digital 9 Infrastructure and Cordiant Digital, with investors needing to fill in a questionnaire showing they understand complex investments.

Baroness Bowles says: “Some platforms are putting hurdles in before an investor can buy investment trusts, as if you’re a professional investor. We find that even as professionals, we don’t always get the answers ‘right’.

“There are difficulties around platforms deciding to deplatform certain investment trusts. What shares are they deplatforming? Are they going to deplatform something from the FTSE 100 because they don’t think it deserves to be there? Those are the sorts of the decisions they are now making.

“If an investment is listed on a public market – do they have a right to say they are denying access to something traded on a public market? It’s an odd sort of Consumer Duty. In the case of investment trusts, the message appears to be that if it doesn’t continue to put in false and misleading numbers, they will be deplatformed.”

Bowles’s comments show the frustration surrounding this issue, not least because the campaign group has come up with an alternative ‘Statement of Operating Expenses’, designed to meet the need for adequate disclosure. Abrdn has pioneered this approach and Murray international already has a working document in place. 

Conway says that the Statement of Operating Expenses is their idea to help manufacturers and distributors meet their Consumer Duty obligations.

“The SOE also elevates consumer understanding by showing how expenses interact with the NAV, as well as breaking them down into component parts, showing pounds and percentages, and year on year changes.” He believes the new document, “would also elevate disclosure for investment companies to a higher level than any other investment product or security on earth.”

The platforms are reluctant to adopt the new SOE document, criticising it as too complex for retail investors. This is in spite of the widespread criticisms on KID documents as impenetrable and misleading.

Part of the problem is that the underlying issue is complex, so any transparency inevitably reveals complexity, but the alternative is inaccuracy. Conway adds: “Giving a consumer a single number is not transparency. It also does not aid consumer understanding.” MacLeod says that the document is “considerably more informative and relevant for the investor and it is utterly transparent.” 

It is tempting to say that the impact could be minimal. Retail investors that buy investment trusts are usually sophisticated investors who understand these nuances. The biggest impact from cost disclosure has been felt by discretionary fund managers who use investment trusts, who have had to declare higher costs to their clients as a result.

The platform problem should not affect them. Equally, MPS providers rarely use investment trusts – largely because of liquidity considerations – so neither does the platform problem affect them to any great extent.

However, it has been a persistent regulatory anomaly ever since the AIFMD first classified investment trusts as complex investments alongside hedge funds and private equity. Investment trusts have been in a regulatory grey area that sees them needing to conform to reporting rules as if they were open-ended funds, but also treated as complex investments.

Baroness Altmann says the platforms’ current position knocks investment companies out of the opportunity set for some investors. “They are hiding behind established practice. Some people have been led to believe that you can’t trust investment trusts to tell the truth about costs, yet investment trusts have always had to comply with the listing rules.”

The situation perhaps reveals larger problem, whereby players in the investment management industry are nervous of regulatory intervention, so give retail investors the worst possible scenario, even if it is inaccurate and – as is the case here – even if regulators have agreed an alternative path.

This article originally appeared on our sister publication, PA Adviser

The consultation was launched in July, with the regulator seeking feedback on how it can simplify retail conduct rules and guidance.

In July, the regulator said it was particularly looking to address potential areas of “complexity, duplication, confusion, or over-prescription”, which create regulatory costs with “limited or no consumer benefit”.

Ahead of the deadline for input, Dom House, lead consultant at Simplify Consulting, says the review is welcome following the introduction of the Consumer Duty.

“It is important that the financial services regulations stay up to date and focus on the overriding objectives to protect consumers and promote competition.

 “We believe the review should consider how the FCA ensures that the principle-based regulation of Consumer Duty balances against more directive regulations that exist in handbooks such as COBS and CASS.

“In particular where there is overlap between differing rules, the FCA should look to simplify and consolidate based on their objectives. This may also be the case for the rules on Vulnerable Customers, which we know is a focus for the FCA.”

See also: City Hive relaunches mentoring programme with EnCircle

Steven Cameron, pensions director at Aegon, also welcomed the call for input, saying the firm sees scope to simplify rules around product disclosure and illustrations.

“Consumers could also benefit if the FCA rules made it easier to move from paper-based to digital communications,” he says, “which can be more engaging and allow firms to track actions taken by consumers to deliver better outcomes.

“Ironically, the consultation around the Value for Money Framework for workplace pensions which closed earlier this month includes particularly prescriptive rules which we hope will be simplified before going live.

He adds that, overall, the Call for Input may be a little premature to reach firm conclusions.

“While we know the Labour Government was keen for the FCA to consult, certain aspects of the Consumer Duty only came into force in July and it may take more time to fully assess scope for simplification within an evolving regulatory approach.”

See also: Mirabaud AM names CEO as part of wider group leadership changes

David Odgen, head of compliance at Sparrows Capital, says the frequency of regulatory change can be “dizzying”.

“It is very demanding to review consultation papers and subsequent policy statements and guidance and assess the impact on internal practices. Just in terms of time spent it is expensive and distracting but actually changing systems to cope is expensive in every sense.  Particularly for smaller firms it is extremely difficult to carry out any sort of accurate cost benefit analysis. Unless there is very clear evidence that a change will be of clear and measurable value to end clients then there should be great hesitancy to implement said change.

“While acknowledging that there will be very little appetite for regulation that is prescriptive as that tends to mean, inevitably, a one-size fits all approach there is room for more guidance in my opinion.  An example recently heard from the FCA was in respect of firms that provide intermediated services to retail clients with whom they have no direct business relationship. We all understand that the services should be appropriate for that ultimate target market but I see little clarity as to expectations regarding any particular steps to be taken or how good real client outcomes can be evidence. A lot of firms in many sectors of the industry are in that position.”

He added that all firms should be focused on client outcomes, which is “what really matters as confirmed by the Consumer Duty”.

“With that front and centre there is a need to look at all rules and really understand why they need to be there for the benefit of the client and what would go awry if they were not.,” Ogden explains. “I don’t think it was ever the intention that clients would get enormous volumes of paper which we must acknowledge is probably not read in its entirety by a very high percentage of individuals. 

It is very difficult for firms providing required information to assess what is necessary or useful and what is not but there is always a risk that if genuinely useful and important material is part of a very large pack of which some is less useful there must be a heightened risk that the key details are not full appreciated and understood.”

The most significant change I’ve witnessed is the dramatic acceleration in the pace at which information is exchanged. This shift has fundamentally transformed client interactions. Today, clients are far more informed and engaged than ever before, thanks in large part to the easy access to real-time data and analysis.

The role of the pandemic as a catalyst for these changes cannot be overstated. The 2020-22 period pushed the adoption of digital tools and platforms at an unprecedented speed. As a result, businesses have found it easier to connect with clients across borders for a more global approach.

Q: What is the investment topic most often brought up by clients/investors?

This is a year of elections. Given nearly half the world’s population will be going to the polls by the end of 2024, clients are asking how various political outcomes could impact their wealth.

Investors are particularly concerned with how different electoral results could affect their portfolios, seeking to understand potential policy shifts and economic strategies that might follow.

Though the focus on interest rates has diminished since last year, they continue to be a big concern for clients, with many wondering whether rates will start to decline, how much they might drop and what this means for their returns.

Q: What piece of regulation has had the biggest impact on your day-to-day role?

Consumer Duty has arguably been the most transformative regulation affecting our day-to-day operations, driving a renewed focus on the end-client. This shift has mandated that we reassess how we deliver value, ensuring all products and services meet the evolving needs and expectations of clients, particularly those in vulnerable circumstances.

The regulation has heightened the importance of transparency, compelling us to clearly communicate the costs, risks and benefits of our advice, thereby reinforcing client trust.

At the same time, ongoing changes in pensions legislation have added layers of complexity to retirement planning. While these changes present challenges, they also offer opportunities for advisers to demonstrate our value. By guiding clients through intricate pension regulations – such as the impact of frozen tax thresholds, the potential reintroduction of the lifetime allowance or the effects of reduced inheritance tax thresholds – we can help them make informed decisions that align with their long-term financial goals.

Read the rest of this article in the September issue of Portfolio Adviser magazine

So what is the difference between the people who naturally have the right attributes and predisposition for an event and the competing Olympians? What we hear in interviews and commentary is that ‘process’, ‘discipline’ and ‘measurements’ supersede the more nebulous idea of ‘talent’.

It is easy to translate this recipe for success to mainstream retail investment solutions, particularly in the context of the FCA’s retail strategy, Consumer Duty and the regulator’s Conduct of Business Sourcebook.

There isn’t an Olympic rule that says you must have a repeatable process, be disciplined, manage your resources or measure your performance – it’s just that the winners who are interviewed all do this. As a kid, I might imagine I just need to run, cycle, swim or row as fast as I possibly can and then race against everyone else and see if I win. As we all know, the real world isn’t like that.

The same applies to risk-targeted, risk-managed or risk-profiled retail investment solutions; the benefit to the consumer, adviser and fund manager is far more than just meeting the regulatory requirements.

A simple outcome of discipline and controls is they make you do things that in the moment you don’t want to do – in the interest of long-term success.

For an Olympian, that might mean turning down a few beers with an old mate, getting up at 5am to train or holding back until the final straight. In a fund, it might mean investing less in the risky new thing you’re excited about, selling down investments that are doing well in order to rebalance or putting consumer outcome ahead of what the market is telling you.

Aiming high

To examine this question, I will use our own insights and data from 6,950 adviser users, 2,300 firms, 1,650 solutions, 165 managers and thousands of consumers. Broadly, we divide the retail investment market into 10 profiles by ex-ante volatility and each has an example or benchmark asset allocation that is used in the MSCI Dynamic Planner indices. Together, this enables us to surface the following insights.

Read the rest of this article in the September issue of Portfolio Adviser magazine

While the rate of model portfolio sales decelerated, gross sales for the channel increased 14%. The quieting for the sector means model portfolios now make up just 51% of sales, regressing to its proportion from the beginning of 2023. Despite the slowdown, net sales remained well in the green for model portfolios, attracting £8bn for the half.

Benjamin Reed-Hurwitz, EMEA research leader at ISS MI, said: “Although gross sales lagged the channel in the first half, model portfolios are proving their staying power and continue to bring in net new money. While much of the growth seen in 2023 stemmed from firms moving money towards insourced MPS programmes, model growth was driven by the adoption of outsourced MPS programmes this year.”

See also: MSCI: Private credit continues to outperform private equity in Q2

Less than half of model portfolio sales were insourced offerings in the first six months of 2024, decreasing from 56% year-on-year. Outsourcing, however, accelerated during this time, with growth in line with overall channel gross sales.

“While for now insourcing remains prevalent, there is a question of how much more room it has to run. A question that will be tied to the trajectory of consolidation in the UK,” Reed-Hurwitz said.

“The outsourcing trend on the other hand is something we expect to continue as we see more model providers converting new IFAs. Consumer Duty is also leading to many questions around choice, which is beneficial to outsourced model providers looking for new territory.”

Across the adviser space, the average firm will choose just two model providers to work with their clients. However, of firms who use model portfolios, 38% depend on the offering to make up over 75% of their sales. In the first half of the year, Quilter, Tatton, Parmenion, Timeline Portfolios and Financial Express were the top model providers.

“This power user group might be generating the bulk of model business through a select group of providers, but that’s not to say there aren’t still opportunities. And the size of that opportunity comes down to where advisers are in the adoption curve,” Reed-Hurwitz said.

“While it remains unclear whether everyone thinking about switching has done so already, there’ll no doubt be some advisers only part way through the journey and still deciding how far they want to take things.”

See also: AIC: More wealth managers willing to go off buy list for investment trusts

A few weeks back, I bought a punnet of strawberries from the supermarket. My only thoughts were about their origin, whether I had cream to accompany them, and if my kids would devour them before I had a chance. However, thanks to an eye-opening experience organised by CCLA Investment Management and ethical trade consultancy Impactt I have forever changed how I view not only strawberries, but all produce I purchase.

The invitation was to join a group invited to learn about the UK Seasonal Workers Scheme, established by DEFRA (Department for Environment, Food and Rural Affairs). This scheme involves hearing from stakeholders across the value chain and included an on-site visit to a farm. The experience highlighted issues that many would not associate with the UK.

See also: World Bank launches ‘largest ever’ outcome bond to fund Amazon reforestation

We started by looking at the lives of vulnerable migrant workers who leave their homes to help our farmers harvest crops due to a shortage of local labour.

Recruiters and scheme operators face numerous challenges in sourcing workers and sponsoring their visas, including maintaining worker welfare. Farmers are under immense cost pressures, producing for supermarket giants, and balancing various headwinds.

NGOs and advocacy groups shared their work to ensure seasonal workers globally are not paying for employment—a basic international convention still not uniformly enforced in the UK. They also pointed out some UK practices, while not technically illegal, effectively strip workers of their choices and rights.

Consumer blindness

Marketeers are experts at painting a picture and supermarket marketeers are also super marketers. After all, they know how to sell mass produced battery-farmed chicken meat. How do they market such a brutal process to consumers who prefer to believe their meat comes from free-range birds? They employ three strategies:

1. Label Authority: Labels such as “Farm Fresh” and “100% Natural” imply validation, making consumers believe the product is trustworthy without questioning the actual practices.

2. Focus on Progress: Emphasising efficiency and innovation diverts attention from the harsh realities of mass production.

3. Wilful Blindness: Consumers choose to ignore uncomfortable truths, allowing unfair and unethical practices to continue unchallenged.

While many are aware of the conditions in which chickens are raised, fewer consider the implications for produce like their strawberries. My visit with CCLA and Impactt to a high-tech strawberry farm, supplying year-round to M&S and Tesco, was revealing. We saw an intensive operation far from the idyllic fields many imagine.

We weren’t just there to learn about agriculture, but to understand the treatment of seasonal workers in the UK. This brought to light the often-overlooked intent and implications of each stage of the process, similar to how minor issues in culture and accountability in fund management can derail long-term returns.

See also: Amundi, Norges Bank and Union Investment call for an end to arms exports to Israel

DEFRA’s balancing act between supporting farmers and adhering to government immigration policies is delicate. Some argue the scheme’s issues stem from prioritising policy over farmers’ needs, highlighting the fine balance between sustainability and profitability.

The role of investors

As investors, we wield significant influence and can drive positive change by insisting on ethical behaviour from the companies we invest in. Challenging company management on the importance of equality and fair treatment in their operations can lead to long-term benefits, both ethically and financially.

Addressing wilful blindness, where individuals deliberately avoid information to escape responsibility, is crucial in these endeavours.

We can change this by:

• Encouraging and valuing transparency. 
• Holding teams and individuals accountable for deliberate ignorance.
• Implementing robust governance frameworks to detect and address potential issues proactively.

Regulators clearly want the investment industry to be more rigorous in their disclosures and accountability too with the introduction of Consumer Duty last year, and the Sustainability Disclosure Requirements (SDR). The latter’s anti-greenwashing measures were rolled out in May and require firms’ sustainability claims to be fair, clear and not misleading, while Consumer Duty focuses on evidencing throughout the value chain.

See also: Discounting net zero: Investment trust sector ‘re-embracing’ ESG values

We all have a part to play but as consumers and investors, our actions and choices play a crucial role in fostering a fair and ethical marketplace.

We need to consider labour laws and how we treat our workers as part of the Just Transition. It’s often unclear what steps we can take, but as shareholders, we can challenge companies like supermarkets on their efforts to ensure ethical labour practices for the food on their shelves.

I now want to ensure the food I consume is harvested ethically.