Multi-managers have been heralded as the saving grace of IFAs, allowing them to throw off the shackles of asset allocation and spend more time advising clients.
But just how much demand is there for fund of funds and manager of manager offerings? Most providers say there has been a definite increase.
Axa head of multi-manager Simon Ellis says the take-up has been good but not huge, mostly because in the last year there has not been as much investment business coming through IFAs as in the past.
He says: “Sectors where multi-manager has significant market share – such as balanced managed and active – are selling OK but not booming. This has somewhat dampened the sales of multi-manager products but they are still gaining in popularity.”
Nonetheless, an Axa survey in the second quarter of this year found that 70 per cent of intermediaries use multi-manager to some extent.
Jupiter director John Chatfeild-Roberts has been in multi-management since 1992 and says it was originally very niche and only started to gain in popularity about three years ago. Fofs have since played a large part in securing market share for Jupiter.
Chatfeild-Roberts says it was interesting to see Fidelity come on the scene eight months ago, highlighting the fact that even the biggest players are keen to get their hands on a share of the market.
Seven Investment Management director Justin Urquart Stewart says multi-manager takes away the horror of fund picking but warns that the dream can quickly turn into a nightmare if an IFA is buying a process that is not right for their clients. His advice is to choose a multi-manager wisely.
However, Urquart Stewart adds that only IFAs that are willing to invest in all the process, research and structure that come with stockpicking and asset allocation should be looking to retain these functions in house. “If you are able to be so specialist and have the talent, there is good reason not to use multi-managers but for the vast majority of IFAs this is increasingly more difficult to perform,” he says.
The key groups that do not seem interested in taking on multi-manager products are the bigger IFAs which have their own asset allocation teams and very small IFAs that are not convinced of the benefits.
Ellis says: “Companies that are primarily focused on execution only and discretionary IFAs see it as irrelevant. Some IFAs see fund selection as their job and others simply are not convinced. But it is becoming increasingly clear that the scope and depth of asset allocation expertise required to make money is beyond the resources of most IFAs and they should see multi-manager as a way to outsource this function rather than as a rival service.”
SEI Investments head of wealth solutions Chris Keogh says the consistent implementation of a business outsource solution such as multi-manager products can significantly impact on an adviser's overall business and quality of their client proposition. The three major benefits are enhanced profitability, more time and resources and improved quality of life.
He says: “Companies that have a pedigree specialising in multi-manager solutions free up time for the advisers to focus on their core strengths of helping clients identify and achieve their life goals.”
Bates Investment Services head of investment strategy James Dalby says that the three-year bear market uncovered a lot of bad asset allocation strategies and poor fund managers and many IFAs have learnt tough lessons from the experience.
He says: “In a bull market, it is easy to make money, even if you are not the best. But generally for IFAs it is difficult to keep on top of what is going on in every fund, particularly with so many job-hopping fund managers out there.”
Dalby says Bates still looks at asset allocation but believes there is still a strong place for multi-manager products in its overall range of solutions. “Some IFAs do not like it as they feel asset allocation is their job, which is understandable. But my question to them is do they believe a multi-manager could at least do as good a job at asset allocation as they can? If the answer is yes, maybe the IFA should look at outsourcing and spend more time on financial planning and servicing clients,” he says.
Dalby says for every negative argument that IFAs have against multi-managers, he can provide a positive and vice versa. “Equally, the same can be said for manager of managers versus fund of funds. They both have their good and bad points. Fofs tend to perform better but Moms tend to be cheaper. The best model would be a hybrid of the two,” he says.