Opinion  

Advisers must get mix of multi-asset products right

John Lappin

Multi-asset funds were the big winners on the Skandia platform in 2013, topping the charts each month with roughly 30 per cent of sales, while UK equities came a distant second with approximately 18 per cent.

The figures will vindicate the strategies of the many fund managers who built this capability in the past few years, although heaven help the strategy director who decided not to pursue this course.

This incredibly strong trend demonstrates one clear impact of the RDR on consumers. Increasingly, they are being advised to invest into some form of investment solution offering a spread of assets and, to some degree, an in-built asset allocation.

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Most commentators will say this is no bad thing at all. It delivers reasonable diversification, hopefully without nasty surprises. It is likely to be replacing a less-than-optimal pattern of switching – especially if it involved advisers trying to chase performance on their clients’ behalf. That is not to say all advisers have timed all their switches wrong.

But this is surely an improvement. So are there any downsides? Well, we can see that more people are now likely to be in similar sorts of investment. These recommendations may be tilted towards the lower value sort of client.

What these funds definitely don’t want to be seen as are some sort of dumping ground for the unloved ‘bronze’ level segment of the client base. That would be harsh as I am sure most good investment advisers have identified these funds as a good place to build up assets long term.

But perhaps a more significant challenge facing advisers is that these multi-asset funds may eventually be set alongside portfolios comprising several funds constructed from portfolio tools, other multi-manager funds and even discretionary fund management.

If these solutions hold similar asset mixes, then surely they will be increasingly compared on price and performance. How easy will it be to differentiate the different recommendations?

The multi-asset fund managers may say it quietly, but they often suggest they can do it better and maybe less expensively than what may look like more sophisticated solutions from some advice firms for better off clients.

Advisers should expect more analysis across their recommendations and perhaps pressure to produce more information. Finally, there may be increasingly striking differences with the execution-only segment of investors.

It may be that DIY investors will be striving to find the next long-term income fund manager bet to replace Neil Woodford. They may prefer an absolute return fund of some description or something more exotic.

So although DIY portfolio tools are available and some direct investors may well jump on the multi-asset bandwagon, it seems likely that the solutions offered by advisers and the strategies adopted by direct advisers could diverge more than they ever have before.

This may not matter. The different mindsets of those who invest with advice and those who invest without are well known so it may not be surprising that different investment approaches are being embraced, unless there is a huge divergence of performance and then one side or the other may face some searching questions.