IOOF national sales manager, investment Danny Dalton said the fee pressure on advisers and on the products they use with clients has seen a shift in how multi-manager funds are being deployed.
Dalton said the traditional use with low balance clients will continue as will the core and satellite approach, which many advisers have used over the years whereby multi-manager funds provide core sector investments while selected investments act as satellites providing alpha.
However, he said some advisers are starting to use them to outsource their entire portfolio construction function and focus on strategy and advice alone.
“Whether it is across part of their client base or the whole, the preference is to focus on a high touch service where the multi-manager funds reduce costs to the clients but lift the adviser service levels,” Dalton said.
“This approach comes from the question of whether a planner has a documented investment philosophy, and how is that played out? Can they add any value by managing the investment process or by outsourcing it to managers and can they make that philosophy scalable and replicable to all clients?”
BT’s Farrell said planners opting for this strategy are recognising that their skill set in investment management cannot match that of a professional investment manager, and neither could their ability to reduce investment costs.
“Questions such as ‘Where do I carry risk for clients?’, ‘Where can I improve core competencies?’ and ‘Where do I want to spend my time?’ are probably not best answered by planners developing their own in-house asset management capability,” – Patrick Farrell
“All of our best investment ideas are rolled up in a diversified multi-manager fund with some advisers believing this is a good reason to move away from the usual core/satellite approach used with these funds,” Farrell said.
“The feeling is these are sufficient for a wider range of clients because we have the manager selection and can provide the transparency required for them to know what the holdings are and if that means a client should rebalance their portfolio.”
However Dalton believes planners need to still ask questions about what it is they are using with their clients, despite the information that is readily available at their fingertips.
“Most of the research houses provide data on the strengths, weaknesses and risks in multi-manager funds and have done the heavy lifting for advisers.
“However, advisers should still access any fund manager support on offer to get direct information on how the funds are blended and where the correlations lie.”
For Farrell these questions and considerations will be reflected in the uptake of multi-manager funds, which he said have continued to go from strength to strength.
He said planners are under regulatory and consumer scrutiny and have to respond to both by being clear about what they do.
“Questions such as ‘Where do I carry risk for clients?’, ‘Where can I improve core competencies?’ and ‘Where do I want to spend my time?’ are probably not best answered by planners developing their own in-house asset management capability,” Farrell said.
Read part one of the report on multi-manager funds: Multiple choice on offer for planners
Read part two of the report on multi-manager funds: Pay once for many happy returns.
