The portfolios are designed to allow IFAs to offer clients the same service through the same fund, regardless of whether the IFA is paid by commission or fees. A shares have an initial charge and offer flexible commission options to advise which allow for customer agreed remuneration, one of the proposals in the RDR. N shares have no initial charge and are aimed at fee-based advisers.
The five FundsNetwork portfolio funds will be managed by Fidelity’s multi-manager team. They will be graded according to risk profile and can invest in funds on the FundsNetwork platform as well as specialist funds that are not on the platform and not open to retail investors.
The defensive fund is the lowest risk fund in the range. it aims to provide income with some capital growth by investing mainly in UK bonds, with a small amount in UK equities and property. The cautious fund will hold half its portfolio in UK bonds, with exposure to UK equities and small allocations to developed market equities and property.
The balanced fund will have a higher equity weighting than the defensive and cautious funds and will include emerging markets, global bonds and commodities.
The adventurous fund invests 80 per cent in equity markets with the remainder in bonds property and commodities, while the aggressive fund invests entirely in equity markets, including the UK, developed overseas countries and emerging markets.
FundsNetwork will provide advisers with a ClientProfiler tool, comprising a question and answer-based assessment, to establish investors’ attitudes to risk. Factors such as an investor’s age, time horizon, investment goals and their level of tolerance towards volatility will be taken into account.
Once advisers have selected the appropriate risk profiles, they will select a tax wrapper if needed, such as an Isa or self-invested personal pension. The portfolio funds can then be monitored and managed online.
The two share classes are a positive development as they provide flexibility for investors and remove the need for fee-based advisers to rebate commission or offset it against their fees. The N shares are on a par with institutional share classes as they have no initial charge, but their low minimum investment makes them more accessible than the institutional share classes of other funds, as these are designed for big lump sums.
However, risk-graded multi-manager funds are not new to the multi-manager section of the market, as companies such as F&C and Skandia already take this approach.