New Adviser food for thought

Tuesday, 7th September 2010 15:56 - by Resident IFA

My company has just taken on its first new Independent Financial Adviser (IFA)...hurrah! One of the immediate knock-on benefits is that he came from a larger IFA Practice, thus they had more money to throw at all parts of their business and advice processes. One thing he is abundantly clear about is the role of the IFA as a Pensions & Investment Adviser, not as a Stock-picker or Fund Manager. I see his point. In all honesty, if you are creating a bespoke portfolio of investment funds for a Client, I am sure the FSA (Financial Services Authority) will expect you to keep this tightly reviewed. So far, so good...but how on earth does an IFA contend with every issue they have in front of them and keep ‘x’ amount of portfolios under review? What if a ‘star’ fund manager leaves? What if there is some obscure legislation which comes into force and knocks the fund out of its stride? And the list of questions goes on. The new Adviser’s viewpoint is to outsource the investment fund decisions to experts such as OBSR and the like. A good example of this is Aegon’s risk-banded funds. Within this, an investment committee takes the decisions as to where to invest, aided and abetted by OBSR. This is known as ‘Multi-manager’ investing i.e. investing in a range of investment funds from different companies, rather than investing simply in a range of shares (or other assets) managed by just one company/fund manager. For example, I am advising a Client on a Pension Transfer, her risk tolerance being ‘Balanced’ (or 5 out of 10 on the scale). Were I to select Aegon, she would have the best part of 40 underlying ‘Best of breed’ funds within the umbrella fund they have for such a risk level; whereas I might recommend a personally-picked portfolio of 8 to 12 funds...still pretty decent. This delegates the fund-picking to a company that has large resources and where qualitative fund evaluation is one of their key business activities. Quite possibly, then, better qualified than me to be chasing the best set of fund managers available and, more importantly, make prompt decisions as to appropriate fund changes and reactions to industry and wider economic/legislative changes. The cost of this may be slightly higher – at 1.8% annual management charge (AMC) – than some individual funds, but I perceive it to be good value for money. I know some Multi-manager funds which charge well over 2% AMC... What is your ‘take’ on this? I think the new Adviser has more time, as a result of the above approach, to improve his service and add real ‘value’ to his Clients, rather than simply chase his tail! Until next time...