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Allocation scouts

Skandia’s decision to launch a range of asset allocation funds has drawn mixed reactions from the industry.

The funds will offer a blend of institutional and retail managers picked by Skandia Investment Management.

Skandia’s current multi-manager offering is pre-allocated but the new products, to be launched in the spring, will hand control over geographical allocation back to intermediaries.

Skandia’s asset allocation range will feature UK, US, European, Japanese and Far East equity funds as well as UK fixed-interest and global fixed-interest options. The portfolios will be divided between three to six managers, with allocation decided by chief nv-estment officer Alan Durrant and Raj Hallen.

Plan Invest investment manager Caroline Worswick says Skandia is wise to add an element of flexibility to its multi-manager options.

Worswick says many IFAs will prefer to have more control and can see positive opportunities for IFAs wanting to invest modest pension funds or for trustees who do not want to pay an IFA to manage their portfolio but still want somebody to manage their money actively.

She says: “This provides IFAs with an opportunity to express their view without making the extra effort of individual manager choice. There will be some IFAs who do not necessarily have the expertise to perform this kind of in-depth management and this could be very beneficial.”

Worswick also feels that in today’s market, it would be very difficult for Skandia to use its asset allocation range as a means simply to pile on another layer of charges for IFAs. They will have to return some benefit for the charges.

Skandia Investment Management head of marketing David Orr says the asset allocator range has been launched in response to extensive res-earch among IFAs. He says the fixed allocation model does not suit every IFA. Lots of them feel that they know their clients best and want more control over asset allocation.

The trend for outsourcing asset management is growing but 90 per cent of IFAs surveyed feel that their clients are looking for them to add value through asset allocation. Skandia says its new product will respond to this demand.

Orr says: “Allowing IFAs to retain control over asset allocation keeps the invest-ment model as a partnership between the IFA, provider and client. It allows IFAs to be more closely involved in the process. The approach of blen-ding institutional and retail funds has also been very popular. We are offering retail customers a bigger pool to fish in.”

Skandia has not yet ann-ounced the charges for the new range. Orr says Skandia’s scale will allow it to continue offering competitive rates to IFAs within a total expense ratio of about 1.85 per cent.

Hargreaves Lansdown inv-estment manager Ben Yearsley questions the wisdom of investing in a manager of manager fund with so few managers in each geographical area. A normal fund of fund product would employ 10-15 managers for each area but Skandia is only using three to six managers for each area.

Yearsley says: “Because this is such a tightly controlled product, it has a strong chance of outperforming but if it does badly, it is more likely to suffer bigger losses.”

Selestia marketing actuary Richard Leehman says the new range of multi-manager funds will be helpful for IFAs who want to take the guesswork out of their fund selection but says his experience is that IFAs generally want the system to give them the answer or at least to give them feedback on the information they are putting in.

Bestinvest business development manager Justin Modray is wary of the whole idea. He says IFAs have increas-ingly been absolving themselves of the business of asset management when they should really be doing the research for their clients.

He says: “This product will help IFAs who want to be seen to be doing asset allo-cation to justify their exist-ence but it leaves out commercial property and natural resources which are two areas we would definitely consider. I would be quite miffed as a consumer to see the IFA profit from handing the business of asset allocation over to somebody else.” director Jo Roberts thinks there are two sides to Skandia’s new product. On one level, she thinks IFAs, especially small IFAs, have enough to deal with coping with the demands of regulation and leaving asset allocation to the professionals in this case is very helpful but it depends on how sophisticated the IFA’s clients are.

Roberts says: “When it comes to Mr and Mrs Average, one has to ask whether they can afford to pay an IFA for the kind of research that Skandia is putting in. Skandia say it is doing roughly 6,000 hours of research to pull this off which is beyond the capacity of almost the entire market.”

On balance, IFAs who are too busy to invest time in res-earching fund managers will benefit from Skandia’s new product as long as its charging structure remains competitive but there will be plenty of IFAs who feel that their expertise and research methods are what make them stand out. They will be reluctant to allow Skandia to take credit for their own hard work.


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