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Advisers lack knowledge in some areas: Defaqto survey

Advisers lack knowledge in some areas: Defaqto survey

Advisers can misunderstand what constitutes good value for investment products they offer clients, funds insight analyst at Defaqto, Jason Baran, has said.

“The high level of responsibility and the requirement to meet client needs from a vast array of choices and financial market information coming from all directions has led advisers feeling overwhelmed,” he said.

A survey of 200 advisers by Defaqto revealed that advisers were lacking knowledge in some areas.

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The 30-page study showed that advisers were not clear on which expense ratio to use to assess funds and there was a tendency to underestimate the total cost to the client of the investment solution.

While 90 per cent claimed to know the difference between the annual management charge, total expense ratio and ongoing charge figure, it contrasted with how advisers said they compared costs, with 10 per cent using AMC, 65 per cent TERs and only 25 per cent used the correct choice, OCF.

While advisers may be recommending single-asset portfolios many used only two solutions regardless of assets.

According to the survey, two-thirds of adviser business used multi-asset funds, including unitised products or model portfolios.

However, 25 per cent still built their own portfolios through single asset funds, while only 5 per cent of that number used passive solutions.

The survey stated: “This appears in contrast to fund inflows into the passive sector over the last five years and raises the question of whether advisers are understanding passive funds.”

Recommendations in the report pointed to advisers making sure they were more aware of total costs and how they compared to expected returns, and were also offering a competitive portfolio that met post-retail distribution review responsibilities.

Adviser View

Dan Clayden, director of Devon-based Clayden Associates, said: “It is not surprising the increased use of discretionary fund management and model portfolios on the back of RDR, as well as with recent encouragement from providers to offer model and risk-rated portfolios to meet requirements.

“As long as you are not comparing one fund on AMC to another using TER, it is not ideal, but it should not be detrimental to clients.”