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Portfolio tools could leave IFAs exposed to UK gilt risk

JP Morgan Asset Management head of UK retail sales Mike Parsons has warned that IFA portfolio tools could leave clients overly exposed to UK gilts.

Parsons says asset allocation tools do not differentiate clearly between different categories of fixed income, which could leave clients at risk.

He says: “A lot of tools say you should have X amount in bonds but they do not tell you what bonds you should be investing in. Our view is that it is not specific enough.

“A lot of people are sitting on UK gilts or UK investment-grade bonds. We think there are big problems ahead for both due to the ending of quantitative easing and the issuance of £200bn of gilts.

“The market is going to move so quickly and our fear is that a lot of people are going to get caught out by a spike in UK gilt yields and the subsequent capital loss.”

Skerritt Consultants head of investments Andy Merricks says: “Asset allocation tools, which so many IFAs use because of the FSA, are shovelling people into what are supposedly low-risk gilts. It is a disaster waiting to happen.”

Worldwide Financial Planning IFA Nick McBreen says: “A lot of these tools have weighted questions that almost predetermine the outcome. If you have got stock questions that are being applied at the front end, however sophisticated the software and technology, you are going to get a menu-driven, formulaic approach.”

But Financial Technology Research Centre director Ian McKenna says: “People need to make sure they use them properly but it is not the tools that are at fault.”



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There is one comment at the moment, we would love to hear your opinion too.

  1. Neil F Liversidge 5th February 2010 at 11:13 am

    The problem with all asset alocation tools is that the questions they ask result in the same answers today as would have been the case 3 weeks / months / years ago. For this reason we have always explained to clients that we apply a ‘reality overlay’ so we don’t put money into sectors which fundamentals indicate are due for a fall. We figure that this is what they pay us for, intelligent analysis and interpretation, not just the slavish and robotic following of a computer-generated template.

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