Prior to our recent event I worked on a mini project to capture and articulate the value propositions of our discretionary manager partners in order to highlight what makes them different in our event brochure (from their use of technology, to their investment process, servicing model, reporting or agency relationship model). I thoroughly enjoyed the exercise and over the coming weeks I will share some of the insights I learnt in a series of posts.
Today I will focus on just one aspect of the Cornelian Asset Managers offering: their Agency relationship model for working with financial advisers. Before I begin let me disclaim, Cornelian are not the only discretionary manager we work with to operate in this way, however I thought it worthwhile to explain the nature of this form of contractual relationship – and the specific benefits – by way of an example.
The Agency relationship
There are several ways advisers can contract with a discretionary manager. Each relationship model will differ depending on the nature of the engagement between the adviser, discretionary manager and client, including where the responsibility for investment and ongoing suitability will fall.
The Agency model involves the financial adviser arranging for the investment management to be carried out by a discretionary manager on the basis that the client does not have a direct contractual relationship with the discretionary manager. Instead the discretionary manager will treat the financial adviser as its client, who is acting as the Agent of the end investor.
What are the benefits of this approach?
One of the biggest hurdles I see advisers struggle with when it comes to partnering with a discretionary manager is overcoming the concern that the discretionary manager will ultimately make a move to steal their clients. Another often cited issue is how the adviser will articulate their value proposition and justify their fees when they outsource to a discretionary manager (a concern we covered in an earlier post).
In situations where an adviser’s clients have a contractual relationship with a discretionary manager, with the resultant flow of direct communication and engagement between the client and discretionary manager, these concerns tend to be more pronounced.
The Agency model used by Cornelian ensures the adviser retains complete control of their client relationships. All communications are channelled through the adviser, who is also ultimately responsible for portfolio suitability and keeping the discretionary manager abreast of any changes in the client’s needs or circumstances.
In terms of benefits, the client will gain full access to Cornelian’s discretionary investment services without disturbing the existing relationship they have with their financial adviser, which can potentially become muddied by introducing another party (unless of course the adviser and client believe the client’s needs are sufficiently complex and direct interaction is warranted).
With all communications coming via the financial adviser, with additional explanations included if the adviser deems it necessary, the client benefits from a single voice without the potential confusion that can arise if communications are sent directly from a discretionary manager without appropriate context. I can cite many examples of adviser’s needing to spend additional time explaining statements or communications misunderstood by clients because they came direct, outside of the adviser’s usual reporting process.
With the adviser treated as Agent (or client) by Cornelian they will benefit from the support of a dedicated manager appointed to their firm, on hand and available to answer any queries or troubleshoot if issues arise. Having access to a resource like aims to ensure the relationship runs smoothly, with specific support provided as it is needed.
Cornelian provide detailed periodic reports including performance commentary, reasons behind changes to the client’s portfolio and performance of underlying holdings. Advisers also have access to their ClientZone system, an online portal that provides the full details of all client portfolios, including valuations (previous day’s closing price), reports and other relevant documents. The adviser can draw on this information and package it up as part of their regular servicing and communications for clients.
Cornelian also offer a Capital Gains Tax (CGT) management service, where they will review the client’s investments and seek to use as much of their annual CGT Allowance as is reasonably practicable while maintaining the risk profile of their portfolio. More information on the Cornelian CGT management service can be found here.
Who is the Agency relationship most appropriate for?
In my view the Agency model is perfect for those advisers who wish to remain in control and at the forefront of their client relationships, managing all communications and engagement – while their clients gain from the benefits that come with accessing a full discretionary investment offering.
One final note: whenever a financial adviser and discretionary manager elect to establish a formal working relationship it is important that the individual roles and responsibilities are mapped out from the outset, with any potential risks mitigated. With an Agency relationship the onus is on the financial adviser to ensure they remain closely connected to both the client and discretionary manager to ensure ongoing suitability.
As always, your comments are most welcome. Please post in the space below.
This article was created by DISCUS based on a discussion with Marcus Brooks of Cornelian Asset Managers to gather insight into the Cornelian Agency relationship model. You can find out more about Cornelian’s investment services here ›