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Drilling into solutions

Gillian Hepburn, Intermediary Solutions Director, Schroders

I recently bought a drill –honest! It reminded me of the old adage that generally people buy one not because they want a drill but they need a hole in a wall. The drill is simply the solution to a problem they have such as how to hang a picture or fix a shelf.

In the asset management industry we often refer to delivering ‘solutions,’ it’s even in my job title! But what are the holes in the wall that we are helping to address and how do these solutions help both financial advisers and their clients?

For me, the introduction of the PROD regulations as part of MiFID II provides a good example of where investment solutions can help with problems and challenges.

Back in 2012, the regulator suggested that an adviser firm may wish to ‘consider segmenting its clients’. This was helpful advice until 2018 when the regulator stated that ‘the target market needs to be defined at a sufficiently granular level’ and that adequate product governance needs to be in place to ensure that ‘financial instruments and investment services are compatible with the needs, characteristics and objectives of the target market’.

This statement takes client segmentation to a new level – no more ‘gold, silver and bronze’ segments which in reality has largely disappeared. Client segments must now reflect the individual needs of different types of client and this must be evidenced and documented.

As a consequence, segmentation has now moved from level of wealth to also focus on lifestage. However there is a third dimension which is leading to production of sub-segments. If we consider post retirement as an example segment, not every ‘retired’ client requires income from their pension and some may aspire to pass on their pension pot to the next generation.

Solutions for this segment therefore require a range of options including protection of capital, growth and income. Some clients may also require ESG investment, low cost strategies or passive investments that are aligned to their attitude to risk and capacity for loss. These requirements can be delivered in a number of ways such as multi-asset funds, platform model portfolios or bespoke portfolios.

Investment solutions are essentially tools and like ‘drill bits’ they can solve a range of challenges ensuring that adviser problems are addressed and importantly that client outcomes can be met.

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