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Multi-manager view

In the past few issues of Money Marketing, there have been some lively discussions around the high cost of multi-manager products.

It’s true that some IFAs who like the idea of offering clients a multi-manager option are undoubtedly put off by the higher annual charges. When compared with more traditional unit trusts, multi-manager portfolios generally charge around an extra 50 basis points a year. But another way of looking at this issue is the opportunity cost to IFAs who ignore the client relationship and business-building possibilities opened up by using multi-manager funds.

Take a client who wants to invest £25,000 through their professional adviser, who recommends a range of unit trusts/Oeics with average annual charges and total expenses. The IFA will need to spend time researching the funds to recommend, preparing reason-why letters and keeping up to date with the funds’ performance to report back to the client on how their investments are doing. But not recommending a multi-manager fund instead (where these tasks would largely be carried out by the product provider) represents a false economy.

The IFA would effectively be doing all of this work for the sake of saving their client £125 a year – the approximate difference in money terms between the annual charges for a multi-manager fund and more traditional mutual funds for a £25,000 investment.

IFAs should take note of the 80/20 rule. Broadly speaking, around 80 per cent of business generally comes from 20 per cent of clients. IFAs could benefit in a variety of ways from moving lower-yielding clients to multi-manager products. Advisers could increasingly focus on holistic financial planning or providing clients with specialist help in achieving their financial goals, such as advice on tax, pensions, insurance and mortgages, which would be likely to open up opportunities for sales of non-investment products.

This would mean giving clients more of what they want – relationship management. The business would be likely to benefit increasingly from word-of-mouth referrals from an IFA’s increasingly satisfied customer base while more time could also be spent on marketing activities. It is also likely to lead to lower costs with less need for administration, compliance and research resources.

If an adviser still wants to continue offering bespoke investment portfolios, they could provide these only for top-end clients, where the rewards in terms of income streams are more likely to match the effort. Multi-manager funds could also play a useful role in such a portfolio, acting as a core investment while the broker uses satellite funds to change the risk/reward profile to suit the client’s needs.

IFAs and clients are likely to get a lot back for the higher annual expense of investing in multi-manager products. Clients should gain from better relationship management while advisers benefit from time to promote and build their business, opportunities to reduce costs and an ability to avoid regulatory difficulties. Multi-manager products may not be cheap when compared with more traditional mutual fund offerings but, if used intelligently, they can certainly give value for money.

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