View more on these topics

Mom’s the word

Four-page special report opens with Helen Pow looking at a crowded marketplace and finding opinion split on whether advisers are copping out by using multi-managers or giving clients the best option.

Some investment specialists believe advisers who use multi-manager funds are dodging their duty to treat customers fairly but many advisers, who carefully choose funds against a stringent criteria before putting their client’s money in a fund manager’s hands, see them as a great way to balance a portfolio.

The multi-manager marketplace has become increasingly crowded in recent years.

There are now 254 multi-manager funds to choose from but funds differ depending on their attitude to risk. They can be cautious, medium or aggressive and the sector they invest in, whether UK, global, income and bond or managed.

Multi-manager fund manager styles differ even more extensively and, because an adviser is essentially handing their clients’ money over to them, it is worth their while understanding how each manager works.

Cockburn Lucas managing director Mike Horseman believes that multi-manager funds are a great option for many clients’ but, as well as looking at the underlying funds, he feels it is imperative to carefully screen fund managers before picking who to use.

He says: “Once we identify a multi-manager, we give them a questionnaire to answer about how they run money. It is important to understand how they work.”

Horseman asks fund managers about their risk control process and he queries how active the turnover of funds is. He says Jupiter’s John Chatfeild-Roberts is a very active manager and F&C’s Richard Philbin, in contrast, has a low turnover of funds but both produce good results.

Horseman also asks managers about the fund’s research ability, how big the research team is and how thorough the research is behind fundpicking.

He says cost is another important factor in choosing an appropriate multi-manager fund. Fees on multi-manager funds are often half a per cent more than that on individual funds so the manager needs to be worth paying extra for.

Horseman says it is crucial that advisers look around for the best value funds as some fantastic funds have fees from 1.4-1.6 per cent but other fairly mediocre funds charge in excess of 2 per cent.

The last few years have seen a frenzy of fund managers jumping ship, with many moving to boutique investment firms. Horseman feels this movement can be destructive and now steers towards fund managers who own a decent stake in the business because they are more likely to stay put.

He says: “This promotes stability in the client’s eyes. What happens if the team leave, like Gary Potter and Paul Burdett? If you are backing a team, knowing what equity stake they have helps you determine if they are likely to flip in the next year.”

T. Bailey fund manager Jason Britton says most employees at the boutique investment firm invest in their own funds which instills confidence in clients and proves that their interests and the company’s interests are aligned.

Formula Limited director Mark Osland, who looks at the underlying fund selection and the fund manager’s past performance first and foremost, keeps very close tabs on the fund managers he uses. But he believes it is vital that advisers monitor their multi-manager funds not only against other multi-manager funds but against individual funds as well.

He says: “Advisers should compare multi-manager funds against all other funds – other multi-manager offerings as well as other non-multi-manager offerings which often come at a lower cost.”

Britton expects that advisers would monitor their fund against individual funds and feels that companies have something to hide if they are not happy about this.

Osland stresses that it is an adviser’s duty to their client to carefully monitor fund performance. Using a multi-manager fund is not a licence to slack off.

He says: “More and more advisers are deferring their responsibility to the fund managers but I do not think you can do that. Multi-manager funds are something that a lot of advisers use in an effort to get rid of responsibility but it is dangerous because I do not think you can easily rid yourself of that responsibility. How do you recommend something if you do not have at least some clue what you are talking about? You have a duty of care and, like an individual fund, a multi-manager fund can go off the boil.” Hargreaves Lansdown head of research Mark Dampier says: “Most IFAs who use multi-managers do not do any work at all. I do not suspect they go out and interview each fund manager, I think they simply choose the funds that have a high profile.

“I doubt a lot of analytical work goes into it but you would think it would consider that a lot of their clients’ money is going into the fund. Advisers should not think that using a multi-manager lets you off the investment merrygo-round.”

But Britton says using a multi-manager fund is not copping out.

He says: “It is a way of making sure the adviser can spend more of their time on the full range of client needs.”

Britton says advisers appreciate multi-manager fund managers “do nothing but choose funds Monday to Friday” and are generally the first to know when a fund manager decides to jump ship so can act accordingly without consulting clients first.

He says: “We have the ability to make asset allocations on a day-to-day basis, making changes as and when it is necessary. Some IFAs like to let the fund manager do the asset allocation and spend more of their time with their clients on protection and pension.”

Recommended

Axed menu is evidence of failure of depolarisation

SimplyBiz says the FSA’s decision to end the payment menu and initial disclosure document is further proof that depolarisation has been a failure.Managing director Ian Thorneycroft says few advisers will rue the demise of the documents and consumers seldom read them, with many finding them confusing.He says: “Menus were brought in as part of depolarisation, […]

McCreevy asserts his authority

It was the long arm of Charlie McCreevy rather than the clunking fist of Gordon Brown that dominated the financial services news agenda this week after he forced the FSA’s hand over the menu and IDD.

Few advisers believe personal accounts will stimulate saving

Over three-quarters of advisers believe pension perso-nal accounts will lead to more money being recycled rather than generate new savings.In a survey of 100 IFAs, Aegon found that eight out of 10 believe personal accounts not will encourage significant new saving while over 90 per cent believe there needs to be a clearer definition of […]

Matrix feeds Asian property fund

The Matrix Group has brought out the Matrix Asian property income fund, which will aim to generate a rising income and capital growth by investing in a portfolio of Asian property, utilities and infrastructure securities.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment