The Fof detox

15 January 2010 8:24 am

For many IFAs, facing the pressures of the retail distribution review, this may be the time to review their business models and look for more efficient, cost-effective way to help clients manage their money.

The fund of funds’ vehicle has proven invaluable to many IFAs. It is a great way of delivering active management, asset allocation, fund selection and diversification to clients. It is cost-effective for clients and we believe it can also help the adviser. It solves many of the challenges of treating customers fairly, saving the time and expense of monitoring funds and asset allocation decisions on a daily basis.

But until now, there has been one weakness of the fund of funds’ model. It has mostly failed to meet the needs of those IFAs who are fans of passive investing. Their clients still need asset allocation, active management and, as the number of exchange traded funds and trackers has ballooned, increasingly fund selection. But the marketplace has probably been slow in responding with retail-friendly solutions.

Now that is changing. We are launching a fund, subject to FSA approval, which we feel will solve a lot of these detox headaches. I will wager that by the end of the year, there will be others too.

Why? Well because we feel that the Fof model lends itself to the needs of the passive investor. It can deliver a portfolio where you benefit from active asset allocation, where holdings around the globe are constantly monitored and reviewed to ensure they keep up with the times. Not only is the asset allocation the subject of a rigor-ous investment process, we also subject the funds to the same procedure, checking that each one is appropriate for the region in which it invests and using a variety of options, including ETFs and the more traditional trackers.

The crucial part is that we will offer this for less than 1 per cent total expense ration with our leading share class, capped at 0.99 per cent and with other options to suit your platform and trail requirements. Now every IFA can have access to this healthy, RDR-compliant, way of delivering investment management to clients, whether they are supporters of active or passive investment. This could reduce the administration and compliance burden for a large swathe of advisers whose conviction in favour of passive management has prevented them from embracing this efficient way of managing client money.

Philippa Gee is head of sales, marketing and communications at T Bailey

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