Suddenly, everyone wants to talk asset allocation: investment managers, policymakers and, not least,...
Suddenly, everyone wants to talk asset allocation: investment managers, policymakers and, not least, advisers. It has come into focus because a variety of investment, commercial and regulatory factors have pushed this subject firmly into the spotlight.
Investment managers are waking up to the fact that recent years may not be easily dismissed as a 'blip'. Bonds have outperformed equities, the FTSE All-Share yields more than gilts, fixed-income is no longer positively correlated with equities. Fundamental relationships between asset classes have shifted.
Asset allocation is also at the top of the regulatory agenda. Policymakers clearly want to transform how advisers do business.
In CP121, the FSA voiced concerns over levels of IFA investment oversight. By portraying intermediaries as sales-driven and requiring harsh regulation to protect clients, the FSA conjured up images of a defensive, liability-sensitive sector. Ironically, the current PI crisis confirms this view. Contrast that with how IFAs want to see their own sector evolve through stable, progressive business development and ongoing management of client relationships. Do policymakers acknowledge this more positive view? Yes ' and from an unlikely direction ' the Sandler Review.
You'd be excused for missing it, since coverage focused on two more high-profile Sandler Review recommendations: the proposed change in adviser remuneration and plans for a 'Sandler Suite' of low-cost products. Far less attention was devoted to Ron Sandler's desire to make asset selection central to advice.
In the short term, it's another issue to grapple with. But by urging advisers to develop their investment specialism and demonstrate that asset allocation considerations lie at the heart of client advice, it's clear that Sandler wants to enhance the status of advisers. If, as seems likely, elements of these ideas make it into policy, then providers and advisers need to respond. As always, it's better to prepare for such changes than be caught unawares, and a good place to start is with products that align asset allocation strategy much more closely with investors' own long-term needs.
Of course, advisers already do this in their client portfolio construction and management activities. But, for reasons explored earlier, asset allocation is an increasingly complex area, which may explain why more IFAs effectively outsource asset allocation through packaged products like funds-of-funds. These can provide a valuable complement to an adviser's overall financial planning strategy ' but they definitely do not seek to do the adviser's job for them. Helping clients define their goals, aligning these with tax and legacy considerations, and providing ongoing structured oversight ' in other words the important parts of advice ' rightly remain the adviser's remit.
Whether or not advisers see packaged products as part of the solution, it can definitely be said that recent market conditions have created an overwhelming need for clients to review their asset allocation approach.
Stuart Holah, head of IFA business, Fidelity Investments
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