At a time when many fund groups are closing or rationalising product ranges, Fidelity's decision to ...
At a time when many fund groups are closing or rationalising product ranges, Fidelity's decision to launch lifestyle funds is a refreshing change. In May, it is bringing out a series of fettered funds of funds that will start off in equities and then switch across to bonds and cash as they reach set maturity dates.
The approach is certainly different but it is too early to tell whether it is a sign of genuine innovation or yet another example of what the financial services industry excels at: inventing products no one really needs.
Either way it raises a number of issues about lifestyle funds for which intermediaries will have to find answers. For example, how easy is it to assess whether a lifestyle fund is being well run or otherwise? Essentially, it has an ever-changing benchmark and risk/reward characteristic. How effective is a fund with a finite life-scale for individual clients? Fidelity is launching funds with maturity dates of 2010, 2015 and 2020, but what use is it going to be for those who are investing for 2012, 2017 or 2022?
The world of pensions and drawdown shows just how difficult it is to exactly profile and map out a client's needs and potential needs, especially when equity markets and bond yields refuse to stand still or behave according to expectations.
For those who do outsource client asset allocation and financial planning to Fidelity, clients may ask, quite justifiably, why the intermediary should be taking renewal commission. It will look as if Fidelity, not the intermediary, is doing the work.
This raises the far bigger question of how intermediaries select funds on behalf of clients. Fund selection and asset allocation have too often been a matter of picking whatever fund is popular rather than creating a comprehensive portfolio of what is needed. What Fidelity is looking to do underlines just how important it is to pick funds as part of an overall portfolio that has a client's goals in view. Whether that should be to be invested in a mixture of Fidelity bond and cash funds as of the year 2020 is up to investors to decide.
This brings up the final key point about these particular lifestyle funds: they are fettered products. Fidelity is a group with a long and successful history but there is no guarantee it will continue to have the same level of success in the future.
The great advantage of the unfettered approach is that it potentially allows access to the best funds from across the funds universe, although it must produce better performance to make up for the higher level of charging.
Fidelity's move into the lifestyle funds market is a welcome development but it is also a challenge. Intermediaries will need to be able to show they can allocate assets for clients and plan for the future better than a mutual fund group.
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