As an asset management company whose roots are in the US, we understand that core to the American psyche is a love of sport, particularly grid-iron, or American Football as we call it over here. Many a Brit has been baffled by the complexities of the game, where the separate ‘defensive’ and ‘offensive’ squads have quite different and defined skill sets to meet the needs of the team during the course of a game. The retail distribution review is significantly changing the field of play for retail fund management groups in the UK and we believe that distribution will be so fundamentally altered that only a strategic combination of both attack and defence will ensure success, or even survival, in the future.
In the years up to 2013 (pre-RDR), we have successfully shepherded client investments from some 20,000 UK advisers across a range of traditional single and multi-asset class funds. With advisers servicing multiple clients, this represented ‘retail’ business in the true sense of the word, but evidenced by a 500 per cent increase in fund of funds flows over the past five years, there has been a growing movement away from adviser-constructed portfolios to outsourced investment solutions.
As advisers segment and seek to de-risk their businesses, we see this growth increasing rapidly from 2013. Where it once took several months and hundreds of individual decisions might move £20m into or out of a fund, an individual FoF manager now has the same impact in a single day. This represents both risk and significant opportunity to those fund management groups that are prepared to grasp the moment.
Retail fund managers will need to decide if they are building component parts or solutions for advisers and we believe that we have the resources and capability to do both. With a defensive and an offensive play in mind, we are launching our first whole-of-market, risk-mapped range of FoFs.
The industry regulator is aware that a significant by-product of the RDR has been a headlong rush towards the creation of centralised investment propositions. Suitability of product is the key to ensuring that clients are not shoe-horned into unsuitable products by an assembly-line approach to advice. Following client segmentation, FoFs provide a consistent process and facilitate risk-mapping by consultancies, such as Distribution Technology and Barrie & Hibbert, to help define and demonstrate suitability. There is no ubiquitous suitability tool covering all CIPs and to achieve wide penetration across the market, manufacturers must ensure that risk-mapped outsourced solutions, including FoFs, are rated by multiple agencies.
Alpha-seeking is the objective of every active fund manager and access to funds not available to the wider market can drive significant advantage when many FoF managers are fishing for exposure in a common pool of funds. In an era of risk-paranoia, mapping tools define asset allocation and divergence from the ‘model’ will also generate peer group outperformance. Pricing, although an important variable, is unlikely to be the ultimate differentiator.
All of which leaves us with the defining factor. Service, like the quarterback, may well make the difference between the winners and losers in the new world.
Jamie Farquhar is head of sales for JP Morgan Adviser Solutions