Multi Asset June 2017 

Why outsource multi-asset investments?

This article is part of
Guide to multi-asset investments

Why outsource multi-asset investments?

Financial advisers have been increasingly outsourcing investment decisions and focusing instead on the financial planning aspect of their roles.

Clients benefit from this as it frees up their financial adviser to help them establish investing goals and then go about achieving them.

Outsourcing is an extremely useful tool when it comes to multi-asset investing in particular.

It is true that asset classes have become more highly correlated. 

This means managers, and potentially advisers, have to work harder to assemble a mix of assets which do not move in the same direction, but rather perform differently across market environments.

Ins and outs

Craig Wright, managing director at Tilney for Professionals, explains: “Multi-asset investing is a specialist discipline requiring in-depth knowledge across all of the asset classes.

“Adding to the required knowledge of the ins and outs of each asset class is the time and high cost to research and monitor all the various options available.”

As David Absolon, investment director at Heartwood Investment Management, puts it: “In terms of why outsource multi-asset investments I think the easy answer is because it’s very difficult to do, it’s much easier when you’re running a single asset class. 

“When you’re looking at multiple asset classes which all behave differently at different times of the cycle, you need a mix and complement of skills and particularly analytical responsibility to be able to build that.”

The cost that comes with this type of investing is also fairly restrictive for advisers.

“It takes infrastructure behind it, so it’s certainly very difficult to do if you have a small amount of assets because you need to resource it properly,” he adds.

A survey by Investec Wealth & Investment conducted among 107 intermediaries reveals two-thirds of financial advisers, 64 per cent, believe it will be much harder to keep investment management in-house over the next two years. 

The reasons they offer for this include the administrative burden involved and lack of resources.

According to IW&I, 82 per cent of advisers cited due diligence demands as the key reason why in-house management services will be harder to provide, followed by a lack of a dedicated in-house research team (63 per cent), too much administration, which was cited by 55 per cent of respondents, and insufficient qualifications and regulatory permission (44 per cent).

The problem is even more acute among smaller adviser firms, the research suggests.

Twin challenges

Mark Stevens, head of intermediary services at Investec Wealth & Investment, explains: “Advisers have multiple calls on their time and most realise that it will become increasingly difficult to cover all the traditional bases satisfactorily and have any chance of successfully growing their business.