The blurring of the lines between active and passive investments means the role of advice has become more important still for retiree clients, according to panellists at the FE Investment Summit last week.
Speaking at the event, Old Mutual Wealth customer director Carlton Hood said the rise in prominence of smart beta investment strategies necessitated greater explanation by advisers.
Smart beta exchange-traded funds are passive products with an active skew.
Such vehicles could equally weight stocks in their underlying index, for example, or track a bespoke benchmark created by an index provider.
A survey published by Vanguard earlier this year found advisers were split over the definition of the strategy.
Some 35 per cent of those polled thought smart beta was a passive strategy, while 29 per cent considered it active and 37 per cent were uncertain.
Mr Hood said the rise of more esoteric strategies meant a greater need for advisers.
“There are myriad complex products on offer, including the likes of smart beta, which investors need to be guided through,” he said.
The rise of such products meant it was becoming increasingly difficult to distinguish the boundaries of the old active versus passive product debate, according to both Mr Hood and fellow panellist Richard Romer-Lee, of Square Mile Investment Consulting & Research.
Mr Hood said: “The debate is no longer about, ‘Should I use active funds or should I use passive funds?’ It’s more about, ‘What blend of products should I have in my multi-asset portfolio?’”
He noted that while almost 90 per cent of people were aware of pension freedoms, the majority were unaware of their options or how to shape their investment decisions.
“Now is the time for advisers – the post-retirement land is a technicolour land where there is a complex 27-year journey,” Mr Hood said.
“The result should not be a drive for complexity.”
Gregg McClymont, head of retirement savings at Aberdeen Asset Management, added it was up to the asset management industry to “simplify and bridge the advice gap”.
But Novia sales director Paul Boston said it was advisers who must guide investors through the range of complicated options on offer.
Even though advisers were in high demand, Mr Boston said cost pressures would continue to affect the industry.
“The cost of advice will need to reduce,” he said.
“[Advisers] are now competing with direct-to-consumer offerings and ‘robo-advice’.”
Mr McClymont said investors had been granted freedom, not only through pensions reforms, but also “technological reforms”.
But Mr Boston added advisers should not be overly concerned with being replaced by technology as “planning, reviewing and reassurance is what clients value from advisers” – qualities that are not easily substitutable.
