James Dalby, market intelligence manager of Aviva UK Life, says advisers need to understand whether a fund that has kept the Balanced Managed tag has any stated risk constraint and exactly what that is.
Some Balanced Managed funds operate to a defined volatility band (or upper volatility limit), Mr Dalby points out, whereas others have no risk constraints other than the asset allocation limits appropriate to a sector the fund sits in.
Where no volatility constraints apply, Mr Dalby says funds in a particular sector can have very diverse risk profile. He says this leads advisers to the question: ‘they can’t all be ‘Balanced Managed’ can they?’
Ultimately there are alternatives that should be looked at in conjunction with the Balanced Managed approach to ensure compatibility with a client’s investment needs, says Alistair Campbell, head of investment marketing at Skandia.
Any research needs to concentrate on three key areas, Mr Campbell says, namely: demonstration that the strategy has delivered credible returns, proof that the structure of the fund is sound, and how the investment strategy has measured up during periods of market volatility.
According to the Financial Conduct Authority, advisers must conduct their own research on products and providers regularly to ensure they are considering relevant products that fit into the scope of your service.
Advisers should update their fact find to collect more information if they move into more complex products and have clear definitions of attitude to risk so the customer is clear about what each means and how they relate to them.
The FCA states:
• Don’t recommend products that you don’t fully understand.
• Ensure your advisers regularly update their product knowledge.
• Undertake regular reviews of customer holdings and the advice given in relation to higher risk products.”
The regulator says advisers should pay due regard to the interests of their customer and present all information in a way that is clear, fair and not misleading.
