Though the subject of costs and charges to investors has always been an issue, the arrival of a lower return environment and greater market volatility have brought this into sharper focus.
America is facing the same downward pressure on costs as we are, but they’re a bit further on this journey. Advisers in the US have long since put aside the philosophical debates about whether active is better than passive, and are using a blended approach, with passive as a price balancer and active the engine for seeking additional returns. We’re seeing advisers exploring these approaches now in the UK.
As platform developers, we can help adviser businesses run their processes and deliver a compelling proposition to their clients at a price that makes sense.
Bridging the innovation gap
My feeling is that if advisers are to help their clients, it’s good for them to be able to regard everything now available in the marketplace as an option, including new asset classes. In the future, investment platforms will grow to encompass a wider range of methodologies, to offer more flexibility and choice to advisers and their clients.
As new and innovative assets like thematic equity funds based on renewable energy, ESG (environmental, social and governance) investments, privately listed companies, unconstrained options, and more – pose challenges for the traditional strategic asset allocation model, it is critically important that investment managers work in partnership with advisers, so their clients can benefit.
And since some of the most innovative investments are considered too complex for retail clients to understand, it becomes more important that an investment professional can make this decision. Again, technology will be able facilitate a seamless transition from advisory to discretionary status, where this is a requirement, or to work with a fund solution or discretionary fund management partner where preferred.
In the future, as well as the scalability and efficiency aspects that new platform technology offers, we will also start seeing technology able to push through a lot more individualisation and solutions more tailored to individual clients’ needs.
One of the key roles of a platform is the management of data, and it’s data that enables individualisation. This characteristic isn’t being exploited within our world nearly as much as it is being used elsewhere, yet.
New platform technology will enable us to implement a wide range of client and adviser requirements, including asset exclusions, capital gains strategies, and asset substitutions, quickly and simply. Being able to efficiently handle exclusions and substitutions for any reason will help us provide a higher level of personalisation for clients.
The way I think about it, next gen technology is all about focus. Existing model portfolio processes create consistency of standard, which means every client benefits from the ‘house’ best ideas. Clearly this is a benefit, but one that comes at the cost of individualisation. It’s a little bit like viewing things from a distance. From a distance, people all look alike. However, as you get closer, their individual differences are more discernible. Consistency with discernment must be the goal.
I believe it will not be long until this becomes a reality. We’re moving towards the time when we’ll be able to deviate from model allocations and provide people with individual solutions while also maintaining the strength of the portfolio to support good outcomes.
Platforms cannot be a barrier for advisers looking to modernise their businesses. Not only should platforms help advisers scale their advisory investment processes, fulfil regulatory obligations, keep up with demand – they should also help advisors to accommodate new ways of working and constructing portfolios.
A lot has changed since we began working with model portfolios on platforms about a decade ago, and as always, we continue to focus on making improvements to the technology with the goal of helping advisers create more effective model portfolios and provide deep value for their clients.
David Tiller is head of UK propositions at Standard Life