Regulatory matters to consider with multi-asset advice

Advisers who are managing investment calls within the portfolio on behalf of the client are liable for those calls.

Even when the daily task of asset allocation or individual stockpicking has been outsourced to a multi-asset fund manager, the financial adviser still bears the liability for the advice given to the client.

Suitability, risk, client-appropriate fund choices: all these regulatory requirements and more must be factored into the choice of fund and fund manager when advising a client to go down the multi-asset route.

Client focus

According to industry specialists, the focus must not be on the track record of the fund manager or even on the quality of the fund management process: the focus, first and foremost, must be on the client. 

Lee Robertson, founder of the Investment Quorum, comments: “Clearly, each client should have been interviewed, and a financial plan agreed on by the client and the adviser.

It is of paramount importance to ensure the proposed product continues to match up with your client’s level of risk. Lee Robertson

“This would include important considerations, such as the amount of risk a client wishes to take, their time horizon for the investible funds, and perhaps their income requirement and whether this is imminent or has been deferred.”

Matthew Phillips, managing director at Thomas Miller Investments, says the way in which funds are selected makes a huge difference to the outcome for clients.

He explains: “We select funds with demonstrable processes and rigour. A disciplined approach in multi asset will tend to garner the best long-term results and the best returns for the investment risk taken. 

“We would avoid star fund managers as we are looking for strong discipline in the process rather than relying on the flair of an individual.”

Suitability

Mr Robertson says only when the adviser has interviewed the client properly can the “necessary due diligence” be done to provide the correct match with the client’s requirements.

But how is the right fund selected? Can advisers rely solely on the key investor information document (Kiid)? True, this is a strictly regulated document which, according to Mr Robertson, allows advisers to obtain important facts about each multi-asset strategy.

This then “helps to realign the client’s requirements to the product”, but Mr Robertson says advisers must go further than this document.

Suitability is a word repeated often, signifying whether a fund is suitable for a particular client at a particular point in time. 

The way in which suitability is measured is generally by using a psychometric risk questionnaire to select the appropriate multi-asset fund for clients.