Portfolio Adviser • Portfolio Adviser Magazine February 2022 • D2C platform outsources buy list research

▪ Interactive Investor has decided to outsource the fund research for its Super 60 and ACE 40 buy list

▪ Industry welcomes decision as it ensures complete independence and avoids conflict of interest

Interactive Investor (II) has been praised for sticking to its core business following the decision to outsource the fund research for its Super 60 buy list to Morningstar.

The D2C platform announced the global funds research house would provide the analysis to populate its main buy list, alongside its ethical sister list, the ACE 40. The methodology and processes will be set out by II.

Fund research is expensive and complex, according to Avellemy CIO Graham Bentley, and therefore requires the appropriate skills, software and technology to be done properly.

“For any business that wants to avoid the suspicion their selections were made with commercial influence, it makes sense to take that process outside if it’s not a natural part of the business,” Bentley says.

II had a team of three analysts researching funds for its buy lists, supported by an eight-strong investment selection committee, which was populated with in-house resources and two external consultants.

There will be no redundancies. Instead, the fund research team will now focus on championing personal finance causes, while the investment selection committee will become the investment research monitoring group. It will continue to be overseen by II’s investment governance committee.

At Hargreaves Lansdown, the only D2C platform that surpasses II in size in the UK, there are four quantitative, three investment risk, seven fund and two ESG analysts.

The team is supported by its strategic asset allocation, product governance and compliance teams. There are also dedicated fund analysts and portfolio managers in the fund management division.

With its acquisition by Abrdn due to complete in Q2, II will soon have a parent with significant research resource.

But Lang Cat consultant Mike Barrett says that, by appointing Morningstar, II can tell its customers its buy lists are completely independent.

Barrett says: “You’ve got to have the best possible governance and oversight around a recommended funds list to make sure there isn’t any possibility of a conflict of interest.”

The FCA dealt briefly with best buy lists in its platform market study, but he reckons they could revisit the issue once the investigation into Woodford is finally published.

Additionally, the FCA consultation into high-risk investments that came out in early February is another example of the regulator pursuing a wider theme of financial firms only promoting products and investments to a clearly defined target audience.

Hargreaves Lansdown came under fire in 2019 when it retained Woodford Equity Income on its buy list right up to the moment it was suspended due to liquidity issues.

Would more platforms following in II’s footsteps lead to a greater concentration of flows into a smaller number of funds?

Bentley says it depends on the instructions given by the platform. “They’ll set out the process that they want Morningstar, or whoever, to follow. So, it’s possible for lots of different people to use research that’s been provided by Morningstar and yet have different results,” he says.

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