Jake Jodlowski
The financial advisory industry is at a watershed. Its preference for customised multi-asset portfolios that gives them a direct input into client investment decisions will increasingly give way to ready-made portfolios that place investment decisions in external hands, freeing advisers to better allocate their time servicing clients and building their practices.
Platforms such as Colonial First State and HUB24 will soon be/are offering Atchison’s ready-made portfolios and, in our opinion, it will appeal to the new breed of adviser for whom making investment decisions – in practice, it effectively means researching and choosing fund managers – is less important than the need to focus on having profitable businesses that are client-centric.
Many wealth management businesses have traditionally used asset consultants to research, construct, and maintain their customised multi-asset portfolios. They have enjoyed having the capacity to be directly involved in the investment decision-making process as a part of their service offering to clients.
With some wealth businesses, this involvement can be justified. The wealth business is adequately resourced, and their advisers have a genuine interest in and knowledge of investment markets and can make a valuable contribution to the process. Other factors that can come into play for those wanting customised multi-asset portfolios are having a point of difference for clients, a sense of client obligation, and a need to stay informed about different asset classes and investment strategies.
But in our experience as asset allocators and managers, those arguments are carrying less weight with the new generation of advisers. They are more relaxed about conceding investment decisions to a professional asset manager provided the ready-made portfolio allows them and their client to overlay their specific investment strategy and to be able to appreciate any risks inherent in the strategy.
For these advisers, there is a realisation of just how difficult investment decisions have become given how quickly investment markets can turn and plethora pf investment products available. Far better to leave that responsibility – and blame if necessary – with the professionals. For example, inflation is expected to cool in the second half of 2023, but whether it gets back within the two to three per cent range – the comfort zone for most central banks – by 2024 remains to be seen. If not, expect central banks, having been bitten once by the inflation bug, to be shy again about loosening monetary policy.
In the US, debate rages among economists whether the economic slowdown will be soft or hard. Few economists dispute there will be a slowdown. Those in the soft camp point to the ongoing tight labor market, despite the sharp spike interest rates (0.25 per cent to more than five per cent) in a little over a year. Those in the hard camp say sharp interest rate rises have traditionally triggered deeper recessions and can see no reason why this time should be the exception.
Then there’s China. The initial pick-up after Beijing decided to lift its tough COVID restrictions in the first half of 2023 is petering out. Its property crisis is still to be played out. To what degree the Government is prepared to pump prime the economy remains to be seen. On the geopolitical front, Taiwan remains a flashpoint.
With these issues – and the countless others that can influence markets – there is debate, conjecture, and analysis. Countless articles by numerous experts dissect these issues daily. Which helps explain why an increasing number in the financial advisory industry are opting for a ready-made solution, especially when coupled with the growing complexity and array of asset classes and investment products. By doing so they can opt for a multi-asset portfolio that comes with an investment performance track record, and transparency, provided via a professional investment team boasting the requisite skills.
There are also other benefits such as an ability to obtain a lower ICR for clients due to pooling of investments and the provision by the asset consultant of timely and comprehensive investment reporting using the vast array of social media tools now available.
For asset consultants, the game remains the same whether it’s for a ready-made or a customised version. This includes the modelling and establishing of investment objectives, strategic asset allocation, asset class ranges and performance metrics, as well as:
- research, blending and selecting underlying investment managers
- monitoring capital markets to take advantage through tactical allocation
- evaluating investment performance
- attending and presenting to investment committees
- providing marketing information and assistance, and
- monitoring all the above and keeping the adviser totally across the ready-made portfolio information.
The trend towards the adoption of professionally constructed and maintained ready-made portfolios seems to have been led by the larger wealth management groups as they seek efficiencies in their businesses whilst delivering positive investment outcomes for their clients. It will not be long before smaller and medium size practices burdened with managing bespoke portfolios follow suit.
By Jake Jodlowski, Principal
