The use of model portfolios, risk-rated or risk-targeted funds and discretionary portfolios has become more common and a number of acquisitions have occurred in the discretionary space in particular. These include Aberdeen acquiring Parmenion, investment trust Caledonia snapping up Seven Investment Management, Old Mutual buying Quilter Cheviot and St James’s Place acquiring Rowan Dartington.

But while the industry shifts and settles into its growing role as a key part of the investment market, there are still questions over transparency, not just on fees and costs, but also in terms of performance.

There may be more model portfolio and discretionary offerings available to advisers and their clients than ever, but how easy is it to compare what is on offer? How do you decide that a portfolio with a risk level 7 on one scale is better or worse than one at a risk level 6 on a different scale?

In terms of costs and charges, the EU’s introduction of Mifid II from January 2017 could prove to be another headwind for the industry. This will require managers to disclose the total costs involved in running a portfolio, including the cost of third-party management on an annual basis.

According to Alan Beaney, investment director at RC Brown, this is resulting in a growing number of managers introducing ‘clean’ fee structures to try to get ahead of the regulation. The key question is, why has it taken so long? The funds industry is facing its own issues over transparency and costs, and it seems to be a theme that is finding a foothold in every part of the investment universe.

With pension freedoms in effect, this is also causing wealth managers to question how they should look to manage assets when investors could remain invested for a lot longer than previously thought.

Ahead of a recent seminar, Charles Brand, head of portfolio management at Sanlam, stated: “The freedoms offered to pension investors by George Osborne have been broadly welcomed by investors and commentators. However, one of the biggest challenges for the wealth management industry is how best to manage investments in the light of this paradigm shift. There are a myriad of questions and related challenges, from ones that impact directly on managers themselves to the core question of how to manage drawdown money safely and sensibly for clients, with the growing number of retirees now opting for drawdown rather than taking annuities.”

So while the benefits of outsourcing are clear – diversification, risk profiling, segmenting clients appropriately – there are also potential challenges to consider. The industry needs to become more transparent and embrace new regulations if it is to see an even bigger take-up among investors.

Nyree Stewart is features editor at Investment Adviser