Centralised Investment Management for Advice Firms: In-House or Outsourced?

The question behind 2,000 searches

Centralised investment management is one of the most searched adviser topics that lands on this site, and almost every version of the query hides the same underlying decision: should the firm build the investment engine itself, or plug into someone else’s? Building a centralised proposition and deciding who runs it are two different problems. We covered the first in building a centralised investment proposition for your advice firm. This article deals with the second.

Our position, stated up front: most advice firms below roughly GBP 250M in assets under advice should outsource the investment management and keep the client relationship, the segmentation logic, and the oversight in-house. Above that level, in-house capability starts to earn its cost. The interesting work is in understanding why the line sits where it does.

Three operating models, one regulatory reality

Strip away the branding and there are three ways to run centralised investment management in a UK advice firm.

Model	Who makes portfolio changes	Permissions needed	Typical cost layer
In-house advisory models	Adviser recommends, client approves each change	Advisory only	Staff and committee time
In-house discretionary	The firm’s own investment team, without per-change consent	Managing investments (VoP)	Staff, compliance, capital, PI
Outsourced DFM or MPS	An external discretionary manager against a mandate	Held by the outsourced manager	0.15% to 0.36% plus staff oversight time

The advisory model is where most firms start, and it ages badly. Every tactical change needs client consent, so in practice portfolios drift between annual reviews, and the firm’s carefully designed asset allocation exists mostly on paper. At 50 clients this is an irritation. At 500 it is an outcomes problem the FCA can see.

That leaves the real choice: take on discretionary permissions yourself, or appoint someone who already holds them. The mechanics of the outsourced route are set out in discretionary fund management: what advisers need to know.

The honest cost comparison

In-house looks cheap because the biggest costs never appear on an invoice. Price them anyway.

A credible in-house investment capability needs, at minimum: a senior investment lead, research tools and data, a functioning investment committee with independent challenge, rebalancing and dealing administration, compliance oversight of the investment process, and the professional indemnity consequences of owning investment decisions. For a firm running it properly, that rarely comes in under GBP 150,000 a year once partner and adviser time is priced at what those hours are worth in front of clients.

Against that, outsourced discretionary management typically costs between 0.15 and 0.36 percent of assets, depending on whether the firm uses a platform MPS or a bespoke discretionary service; the full breakdown is in our guide to DFM charges. On GBP 100M of assets under advice, the outsourced fee is GBP 150,000 to 360,000, paid by clients within the total cost of investing, while the in-house cost is paid by the firm. That framing matters: the two models put the cost in different places, and the Consumer Duty fair value assessment has to hold wherever it sits.

The crossover is not a single number, but the pattern is consistent. Below roughly GBP 250M, the in-house capability is either underpowered or disproportionately expensive. Above it, scale starts to justify the fixed cost, and the argument becomes strategic rather than financial.

What the FCA expects either way

Outsourcing does not shrink the firm’s regulatory obligations; it changes their shape. The FCA’s thematic review TR16/1 on research and due diligence remains the reference point: the regulator expects firms to assess third-party solutions properly at the outset and to keep assessing them, not to select once and file the decision.

In practice the outsourced model turns the firm’s investment function into three disciplines:

1. Selection. Evidence-based due diligence on the manager, covering permissions, process, cost, and custody. Our framework is in due diligence when choosing a discretionary fund manager.
2. Segmentation. A written logic for which clients go into which service, from platform models to bespoke mandates. The trade-offs are covered in model portfolio services vs bespoke portfolios.
3. Oversight. Ongoing monitoring of performance, fair value, and service against the mandate, evidenced through the firm’s investment committee and reviewed under the Consumer Duty. The working framework is in ongoing DFM oversight under Consumer Duty.

Firms that outsource and then treat the manager as fire-and-forget have simply swapped an investment risk for a governance one. The FCA’s file reviews do not distinguish between a bad in-house portfolio and a badly overseen outsourced one.

Where in-house still wins

Taking a position means acknowledging the exceptions. In-house discretionary management earns its cost when at least two of the following are true: assets under advice comfortably above GBP 250M, a genuine investment specialism the firm sells on, a client base concentrated in complex or illiquid holdings that external models handle poorly, and an ownership plan that values the recurring management fee inside the business. Firms building enterprise value ahead of a sale sometimes internalise investment management precisely because acquirers pay for that margin.

For everyone else, the uncomfortable truth is that an in-house capability built to look like a differentiator usually operates as a cost centre with key-person risk. One investment lead leaving can strand hundreds of portfolios behind a process nobody else fully owns.

Deciding in one meeting

The decision is simpler than the industry makes it. Put four questions to your next partners’ meeting:

1. What does our investment process cost per year with all internal hours priced at client-facing rates?
2. Could we defend our research and rebalancing discipline in an FCA file review this quarter?
3. If our investment lead resigned tomorrow, what happens to client portfolios?
4. Would we buy our own investment service at its true cost if a third party offered it?

Firms that answer those four honestly tend to reach the same place: centralise the proposition, outsource the management, and redeploy the recovered hours into advice, where the firm actually earns its fee.

If you are weighing an outsourced discretionary arrangement and want to see how an institutional-grade solution handles segmentation, custody, and oversight reporting across different client sizes, contact us or read about turnkey multi-family office solutions.