Advisers have myriad demands on their time – meeting and talking to clients, keeping up with regulatory reforms and requirements, as well as maintaining client investments.
For many years now, multi-asset funds and solutions have been marketed as a way to ensure clients are diversified across asset classes, while taking the burden of financial decision-making off the adviser’s shoulders.
Given the chance to outsource to a multi-asset fund, many advisers will, understandably, do so.
Gary Potter, co-head of the multi-manager team at BMO Global Asset Management, observes: “The job of any financial adviser is an increasingly complex and time consuming one and the investment component is just one facet of their growing responsibility towards a client.
“The growing regulatory and reporting requirements alongside an increasingly sophisticated and informed general public, allied to the complexities of today’s modern investment world, in a changing tax world regarding pensions, generally argues in favour of outsourcing the specialist component parts of financial planning to experts in various fields.”
Advisers should work with asset managers who not only have the investment credentials they would expect to see, but who also have a commitment to keeping advisers informed, with clear communication, on what’s happening in client portfolios.Kevin DoranAs Meike Bliebenicht, senior product specialist, multi-asset at HSBC Global Asset Management, points out, advisers’ strengths often lie in handling client relationships.
“They establish the level of risk their clients are both willing and able to take with their portfolio. From this, a suitable asset allocation needs to be constructed to provide a portfolio of investments which meet the investor’s objectives, while remaining in line with the chosen risk profile,” she says.
“One option would be for the adviser to construct this asset allocation and then fulfil it with a range of funds covering each asset class.
“Alternatively, multi-asset funds provide advisers with a solution with which they can meet their investors’ needs,” Ms Bliebenicht suggests.
Time well spent
An adviser’s time is sometimes best spent with clients, helping them with their advice needs, agrees Kevin Doran, chief investment officer at AJ Bell.
It is not only the increasing length of advisers’ to-do lists which mean they can often benefit from being able to outsource, but also the economic backdrop.
While a decade or more ago advisers may well have been able to simply construct a fund consisting of equities and bonds to provide decent returns, this approach in the current environment often will not suffice.
Andrew Harman, senior portfolio manager, multi-asset solutions at First State Investments, notes: “The current low yield environment challenges investors’ reliance on traditional asset classes, such as equities and bonds, to provide sufficient returns to meet their investment goals.
“People are increasingly looking for products that can give them the required level of return, while balancing risk and preserving capital.”
But he concedes that simply holding a large number of asset categories does not provide real diversification.
Understanding how asset classes can produce uncorrelated returns can be quite technical and requires a very different skillset that not all advisers possess.
It can also take up a huge amount of an adviser’s valuable time.
This is why many advisers may want to outsource these decisions to a specialist firm or manager.
Where does responsibility lie?
But does opting for a multi-asset fund mean outsourcing the responsibility that comes with it too?
Mr Doran asserts it does not remove the responsibility.
“Advisers should work with asset managers who not only have the investment credentials they would expect to see, but who also have a commitment to keeping advisers informed, with clear communication, on what’s happening in client portfolios,” he explains.
He does acknowledge there are some disadvantages to outsourcing to a multi-asset strategy though, which means it may not be the right solution for all advisers and their clients.
Buying a multi-asset solution, rather than building portfolios a building block at a time, uses less resource both in the selection process and also in explaining the recommendations and risks to clients.John Roe“The downside of outsourcing is that it generally removes the ability to create entirely bespoke portfolios based upon the detailed understanding that advisers have of client needs,” explains Mr Doran.
“For some advisers, putting such distance between the asset management and the client’s end investment goal can cause some discomfort.”
But John Roe, head of multi-asset funds at Legal & General Investment Management, believes these types of investment solutions can offer an efficient route for those with more bespoke circumstances.
“Buying a multi-asset solution, rather than building portfolios a building block at a time, uses less resource both in the selection process and also in explaining the recommendations and risks to clients; for a given justifiable spend, that can allow more focus on areas that are likely to add more value, like their attitude to risk and personal circumstances,” he says.
Adviser checklist
While outsourcing can indeed free up an adviser to focus on other demands on their time, there is some due diligence needed in selecting the right multi-asset solution in the first place and then ongoing due diligence once a client is invested.
Mr Roe admits: “Choosing the right multi-asset funds remains an important role for the adviser, as they can differ a lot in terms of risk-taking, return potential, asset allocation, level of active management and costs and fees.”
He continues: “A good approach for choosing which funds to recommend to clients is to identify a set of clear investment beliefs first, based on what has been evidenced to add value to outcomes over the long-term and then use that to narrow down the available funds to a suitable shortlist.
“At that point it comes down to evaluation of the individual fund management company and team responsible for the funds.”
For Mr Potter, an adviser can pick the right multi-asset manager based on the following:
- Track record
- Suitability
- Appropriate products
- Durability through investment cycles
- Appropriate communication channels
And if the chosen multi-asset strategy turns out to be unsuitable for the client over time?
Mr Potter says: “In the event that your chosen outsourced manager doesn’t quite deliver the outcome expected, the adviser can proactively select an alternative, therefore the chances of the client staying with his or her adviser is much stronger.”
eleanor.duncan@ft.com
