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A financial planner’s view – Barry Laymond

Do we need multi-manager funds and are they really the panacea for those wishing to entrust their monies to investment houses?

Over recent years, a new breed of investment style has been introduced – multi manager – but are investors really getting what the label says on the can?

The public clearly has a misconception over multi-manager. Many companies such as Skandia and Selestia, while apparently giving clients a multi-manager approach, are in effect giving one the ability to invest across a broad range of funds. This is commendable, but no active management is carried out in relation to the funds. Therefore, when the client finds that their funds have dropped in value, they will lay blame on those companies or possibly the adviser who sold the contract. The client may even go as far as to lay the blame for any loss on the company their money was invested with. Conversely, if the funds made money, the client would not rush forward expressing their thanks.

Clearly, active management of any portfolio built using the MultiFunds approach was never going to be provided by the likes of Skandia. But the way many such products are marketed is, perhaps, misleading. Skandia for instance has its MultiFunds range which can be used for Pep transfer plans, Isas, Isa transfer plans, pensions and unit-trust accounts. I think the problem lies with the word multi, as many investors appear to be mistakenly under the impression that Skandia would be managing their investments on a day-to day-basis.

I have questioned people who have used this approach and they think that the idea of having access to the range of fund managers and funds within such a contract is because the company do, in fact, manage the funds selected. What such people think is not the fault of the company or adviser, but I do think all literature should make it much clearer what is being provided and what is not.

That means these products should state: “We do not provide any active management or, indeed, any management of the portfolio built or any of the funds you have selected. The day-to-day management of your investments are handled by each of the companies you have chosen and we are merely providing you with a platform to use to enable you to benefit from a spread of investments within one contract.”

However, we now have many companies introducing ranges of so called multi-manager funds but are they really of benefit to investors? The answer is yes if care and advice is taken before purchasing any such product.

A true multi-manager fund is one where the performance of individual funds within the product are monitored and active management is taking place. The advantage to investors is that the responsibility for the asset allocation, fund selection, monitoring of performance and making changes as needed clearly lays with the multi-fund manager. The advantage to advisers is they do not have to take on the responsibility of monitoring the funds and they have effectively sub-contracted that task. This leaves them free to concentrate in providing more financial planning and advice to their clients.

The downside is that the multi-manager fund may not be providing as active management as the investor and adviser may be expecting. Another downside is where the multi-manager concept is run by major investment houses and they only use in-house funds. Then the investor ends up in reality getting a selection of funds that do not represent a spread of expertise across a large number of managers and styles.

However, a few investment houses have set up truly multi-managed funds. But the question remains – are such funds really of use or are there better ways to advise clients wanting a spread of investments?

Barry Laymond is a certified financial planner at Barry Laymond Financial Services


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