A little less than a week goes by without another agreement on the management of funds by third parties. English-speaking countries call it sub-council. Their popularity is such that this issue was part of the Brexit negotiations. Indeed, the ACF (the UK Financial Conduct Authority), the AEMF (the EU European Securities and Markets Authority) and all national authorities have reached an agreement in the event of a hard Brexit. Europeans will be able to continue to delegate part of their management activities to the UK. This is a clear trend that is not expected to end in the foreseeable future. Conversely, in a third-party asset management relationship, the client has been in direct contact with the external manager. The client retains control of what he communicates to his TPAM and retains control of the hiring and dismissal of this manager. As an investment advisor, you can provide the client with performance-based recommendations that the client can follow or ignore as they see fit. This is important in terms of performance, management and customer relationship. In a sub-consulting relationship, the consultant may hire or fire external managers, as they see fit with the way investments work.

The consultant can negotiate all the terms, fees and services that must be provided on behalf of the client – which some clients may prefer, since they do not need to be heavily involved. Some of the largest and most experienced investment managers in the investment market are developing a sub-advisory platform that allows them to have better access to under-consulting relationships in the market. Wellington Asset Management and State Street Global Advisors are two investment managers who actively seek to offer their services through sub-counsel. In a world where asset management offerings tend to dominate, sub-counsel is a way for clients to access open architecture at a competitive price. This allows them to benefit from their distributor`s operational expertise and better risk management, including through access to transparency in undervalued portfolios. In the sub-counsel relationship, the advisor is the most important contact with the client throughout the relationship. The consultant has more flexibility to adapt to changes in the market by using external managers and adapt to changes in client objectives. An important distinguishing factor between a sub-counsel or TPAM relationship is the one that controls the hiring and dismissal of the external manager.

If you can hire or fire the manager yourself, you usually have a consulting relationship. Conversely, it is usually a TPAM relationship when only the client has the right to hire or remove the external manager. There is such an appetite for sub-counseling that, despite the price pressure they are under, asset managers have had no choice but to get into the breach and ensure that they are able to provide their sub-counsel skills by including the constraints that these intermediaries want. The sub-consulting market is booming and, according to INDEFI, it is the fastest growing open architecture segment in Europe1, with an annual growth rate of 18%.