View more on these topics

Advisers hit back at ‘bone idle middlemen’ media attack

Mark-Carney-700x450.jpg

The use of multi-manager funds by financial advisers has been the subject of strong criticism in the Daily Mail today but advisers say fund of funds can be a cost-effective and beneficial investment solution for clients.

Advisers using multi-manager funds were described as “lazy middle men” for choosing “off the peg” investment products for clients in today’s Daily Mail article. This has not been received well by advisers. 

The article argues many advisers “lack the know how and the will” to research and select individual products and so opt for fund of funds to  allow the multi-manager to take responsibility for fund picking.

It also suggests these are no more than “off the peg” funds designed for the mass market, which the individual investor could easily access themselves through step-by-step forms on fund websites.

It says: “So when an adviser recommends a packaged fund, you are essentially paying extra for an investment guru to build something you could buy off-the-peg. And because they are designed for a broad type, they might not match your very specific needs.”

The higher charges for using a multi-manager fund also comes under criticism due to the fact that on average their performance does not stack up, although there is also significant divergence in performance across fund of funds.

Chase De Vere head of communications Patrick Connolly does acknowledge that fund of funds tend to be more of a “one size fits all” product. However he also points out how and when this can work in a client’s favour.

He says: “For a novice or small investor who wants to achieve diversification but doesn’t have enough money to spread it across a range of funds, then a multi-manager fund makes perfect sense. It also works for the individual who needs a long-term investment that they want to leave alone.”

Whitechurch Securities head of research Ben Willis demonstrates the cost-effectiveness of using a multi-manager fund for both the client and adviser. He says: “The biggest reason that advisers use multi-managers is that it is cost effective for clients.

“For clients with, say, less than £50,000 to invest, it is not cost effective for the adviser to construct a tailored portfolio of investments.

“In the RDR transparent charging world, the adviser would have to charge for the work required to carry this out, which could work out as quite a high fee both for the initial work and the subsequent ongoing review, particularly if the adviser worked on an hourly fee basis.”

Murphy Financial associate partner Adrian Murphy adds that when he uses a multi-manager fund, usually for lower value investors, the client is charged less on the basis that full financial planning has not been given.

Advisers agree that, crucially, multi-manager funds are also appropriate products for many financial planners who may not be investment specialists and that this in turn can bring benefit to the end investor.

Bestinvest managing director Jason Hollands says: “You can be superb and know your client, understand their needs and their tax planning but that doesn’t necessarily mean that you are the right person to be managing an investment portfolio.

“The move advisers have made towards multi-manager funds is not necessarily a bad outcome for the client because they end up with a solution that it is professionally managed by an investment specialist, allowing the adviser to focus their time and skills on financial planning.”

Murphy also highlights the “regulatory burden” that may have pushed advisers towards using fund of funds and away from running their own models.

He says: “The FCA paper on centralised investment propositions from last year really put the fear of God into everybody about the requirements just to run your own model. This has contributed to the huge uplift in the use of multi-manager funds.”

Investment Quorum executive director Lee Robertson notes that multi-manager funds currently have higher charges. However he also highlights recent moves to change this.

He says: “Multi-manager funds are more expensive, there is no getting round that. However I would say that prices are dropping because as more advisers opt for a multi-manager style approach post-RDR, there is an economy of scale coming in which means prices are beginning to come down.

“Post-RDR it may be that advisers should be having discussions with multi-managers about the level of costs, because everyone is taking a view now that costs have got to fall.”

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. An interesting viewpoint and whilst I haven’t seen the Mail’s article, I suspect it won’t outline that advisers undertake work assessing a clients ability to invest, their ATR, their tax position and also the ‘end game’ – amongst other things….

    I’m not sure that John Chatfeild-Roberts at Jupiter (or any other fund manager for that matter) would take a call from a client who has questions about such matters.

    We indeed use multi-manager and also multi-asset funds – sometimes as core holdings – given that they have the ability to make discretionary decisions on behalf of their investors and in some cases make tactical calls in terms of wider economic indicators.

    We also use funds which are neither, along with passives, investment trusts etc depending on the client’s circumstances.

    What we’re looking for is VALUE – net returns after charges – not simply costs however from experience what clients often appreciate is that we add further value by being their advisers and guides…. something fund managers aren’t designed to be.

  2. Bone idle middlemen indeed – Has anyone ever had a response from a financial journalist?

    I have sent several letters and emails to the Mail concerning errors in their columns but have yet to receive one single reply. Bone idle journalists, who needs ’em.

    I wonder how much advertising revenue the likes of The Daily Mail has pocketed from financial products they have later described as poor investments?

    Money makes the world go round as long as it stops off at their advertising department.

  3. For most of my client portfolios, I usually recommend just a couple of MM funds for diversification and (hopefully) dilution of risk.

    As for investors with only modest sums to invest ~ who can afford them anymore?

    BTW, does anyone know what SJP partners do in return for their trail commission?

  4. So financial advises are now global strategic stock brokers as well as everything else we have to do! No adviser can look after 100 plus clients do asset allocation for all of them and discretionary manage, it’s the mail that is misleading vunerable people into getting clients to think that their IFA’S are fund managers and strategic asset allocators. All the IFAs that I have seen do this are just using asset allocation tools from the the likes of towers Watson or the like, and the clients get left in the same portfolios regardless ! Multi asset funds are a good approach for most investors and if everyone would have used this approach over the lat ten years we would not have had many complaints like arch cru and key data just to name a few.

  5. Once again those that can do and those that can’t preach, teach or write articles giving ‘advice’ with impunity.

Leave a comment