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Multi-manager view – Bambos Hambi

In a recent Multi-manager view Dennehy Weller managing director Brian Dennehy outlined the process he uses to select funds for his clients and suggested that other IFAs could do the same, rather than be lazy and invest with a multi-manager.

Our first reaction is to say that if his method is delivering what Dennehy and his clients are after, then all well and good. However, there are numerous IFAs who take an alternative view.

Demand for multi-manager services from IFAs is growing rapidly and I think it is worth recognising the reasons for that. It is not because IFAs are lazy, as Dennehy suggested. IFAs regularly tell us that outsourcing the job of picking funds likely to outperform in future – rather than having outperformed in the past – leaves them more time to concentrate on building client relationships.

Then there is the small matter of performance. Dennehy suggested that IFAs could achieve 80 per cent of the performance benefits of a multi-manager fund for 20 per cent of the effort. But why stop at 80 per cent of the benefits when you can give your clients 100 per cent and still concentrate on working on client relationships, rather than fund research?

It is our experience that IFAs are comfortable buying funds. However, it is just as important to know when to sell. Yet many would admit to a weakness in this area.

Another issue facing IFAs is that simply picking good funds is not enough – they need to be combined in an efficient manner to ensure the client is not taking too much or too little risk. Multi-managers have made huge advances in this area as we have the skill and resources to use information properly.

Economies of scale allow us to buy risk management systems that might otherwise be prohibitively expensive. This may be the area that Dennehy referred to as “snake oil”. However, a realistic assessment of the events of March 2000 would remind people that their diversified portfolios were probably not as diversified as they thought.

Asset allocation is being recognised increasingly as an important source of performance. There are few investors that would claim to have demonstrated consistent skill in this area and fewer still that have evidence to support their claims.

Multi-manager funds such as the Gartmore portfolio range can provide this to the IFA alongside fund selection and portfolio construction.

Multi-manager can also help to make an IFA business more profitable. Take the case of an IFA dealing with a £20,000 client portfolio. You could spend hours and hours analysing the client’s portfolio and researching funds for them, then pick up only £100 in renewal commission. Hardly time well spent for you or your client. Let us remember that this renewal is also supposed to fund the constant monitoring of the client’s holdings. This means that IFAs need to keep on top of fund manager changes, for example, and we do not anticipate a decline in the current trend that has seen only 35 per cent of managers having a three-year track record on their current fund.

In summary, as well as providing the reassurance of daily monitoring and risk analysis, we believe that outsourcing fund selection to dedicated multi-manager teams delivers real performance and financial benefits to IFAs and their clients.

Bambos Hambi is head of multi-manager at Gartmore

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