Outsourcing the investment function to a third party does not mean advisers can wash their hands of all decisions, says Cedric Bucher, head of business development of Architas...
When the changes of the Retail Distribution Review (RDR) take effect at the end of this year, the financial services industry is set to undergo a major overhaul.
One of the key aspects is stricter regulation surrounding the suitability of investments for clients.
As advisers and investors seek more diverse investments that can be better suited to specific requirements, we expect more and more to turn to multi-asset investment solutions.
Architas's Cedric Bucher on why outsourcing your investment function does not men 'job done'
In addition, as transparency, charges for clients and improving the professional standards of advisers are also important objectives of the RDR, we expect a lot more investments to be outsourced.
From an adviser’s perspective, outsourcing investment decisions will allow them to focus on other areas of their business where they can set themselves apart from their competitors, namely client relationships and financial planning, while satisfying the Financial Services Authority’s (FSA's) requirements.
Cause and effect
The investment suitability aspect of the RDR is simultaneously cause and effect of the surge in multi-asset solutions.
Investment suitability - most commonly gauged by the clients’ attitude to risk and capacity for loss - is an even greater consideration for multi-asset investment solutions, where calculating the overall volatility of a portfolio becomes more complex than that of a single asset class.
We know from Modern Portfolio Theory the benefits of diversification in reducing risk in a portfolio. In a portfolio of two assets, the expected return is simply the weighted sum of the expected return of the two assets.
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