The challenges facing advisers have evolved in recent years as clients typically live longer than before, while definitions of risk have also evolved as monetary policy changes have redefined the traditional notions of risk.
Historically, an adviser could expect the typical client to spend perhaps five or ten years in retirement, but as people live longer this has evolved to 15 or 20 years in many cases.
The impact of this is to extend the period during which advisers are working with clients, and means income investing has become a greater priority.
Steven Hay, co-manager of the Baillie Gifford Multi-Asset Income fund told FT Adviser recently that these demographic changes mean that “income investing is the future.”
Constructing a multi-asset portfolio for long-term clients means in time, income will become a greater priority.
The generally strong performance of investment markets over the past decade means the typical risk and return questions have also been flipped on their heads, with plunging bond yields meaning investors are less able to look for income from fixed interest funds, while equity income products are clustering around a small number of large income paying stocks.
The policy of quantitative easing, which has been a feature of investment markets since the global financial crisis, has generally lifted all markets at once, making stock selection more difficult as the power of the liquidity coming into the market, or being removed from it, is greater than the individual movements of a stock.
This has made asset allocation, that is, determining which types of asset to invest in, crucial, according to Meike Bliebenicht, senior product specialist in the multi-asset team at HSBC Global Asset Management.
She said: “Asset allocation is the main driver of every multi-asset portfolio’s risk-return profile.
"Therefore, getting the asset allocation right is key to investment success.
"We focus on the top down asset allocation decision, rather than bottom up stock selection.
"In fact, to implement our equity exposure we often use passive vehicles, such as index trackers and ETFs, as they capture our desired asset allocation well and in a cost-efficient way.
"A multi-asset approach gives us the opportunity to reduce exposure to riskier asset classes and we have recently taken some risk out of our portfolios, reducing our exposure to equities.”
Patrick Connolly, head of communications at advice firm Chase de Vere says: “The client’s risk profile will dictate the mix of investment assets they hold.
"Our centralised technical team determines an asset allocation mix for different risk profiles, which our advisers will use.
"This ensures that the asset allocation of our clients’ investments is appropriate for their risk profile
"We then use the investment expertise of our Portfolio Management Team to decide upon the underlying funds which are held to populate these different asset classes.
"Our Portfolio Management Team conducts quantitative and qualitative analysis to produce a panel of approved investment funds for each asset class, for example, UK equities, European equities, US equities. Our advisers must use the funds which have been approved by our investment team.