Multi Asset June 2017 

Regulatory matters to consider with multi-asset advice

  • To understand where the focus should be when choosing multi-asset funds
  • To ascertain levels of risk and client suitability.
  • To learn what sort of regulatory guidance or legislation will apply to assessing suitability.
CPD
30min
Regulatory matters to consider with multi-asset advice

Regulatory compliance plays an ever-increasing role in the investment choices of advisers for their clients. 

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.

“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.

However, this does not go far enough. Bruce Moss, founder and strategy director at eValue, comments: “The main requirement is to ensure the suitability of any recommendation to invest in a multi-asset fund.

Comments

CPD
30min
  1. What does Mr Phillips say he is avoiding?

  2. Mr Moss says risk varies with what?

  3. Which of the following is NOT one of the seven rules for multi-asset investing advocated by Mr Kos?

  4. Mr Moss says advisers often forget what?

  5. Why can the FCA not be prescriptive about what sort of information should be required in suitability checks and fact-finds?

  6. Mr Robertson suggests past errors of judgement now require advisers to do what?

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