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Regulatory action over asset allocation a worry for IFAs, says Pru

Nearly six out of 10 advisers are concerned about possible regulatory action over asset allocation and fund selection decisions, research from Prudential has found.

The survey found 39 per cent of advisers are concerned they could face problems justifying investment decisions, while another 19 per cent are concerned but have plans in place to deal with potential regulatory issues.

Half of advisers surveyed would welcome support from providers on asset allocation and fund selection as they battle to cope with the fallout from recent extreme stock market volatility.

Prudential director of investment funds Andy Brown says providers should be doing more to support advisers and giving them access to expert advice and help.

He adds: “The time advisers are currently spending on asset allocation and fund selection cannot be underestimated. We only see this requirement increasing over the next 12 months and we estimate more advisers will look to providers for support in meeting their regulatory obligations.

“It is in the interests of advisers and providers to come up with innovative solutions that meet clients’ expectations and their assessed risk levels.

“Asset allocation and fund selection are vital in ensuring that client needs and long-term investment expectations are met. However, both are potentially demanding and time-consuming. Finding reliable sources of both can enhance the service advisers offer to their clients.”  



More bad news for Keydata investors

Keydata’s administrator PriceWaterhouseCoopers has revealed that properties invested in by special purpose vehicle Hometrak SA are now in negative equity and it is unlikely the investment will be returned.


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. “assETFirst” is an innovative model portfolio service designed for use by those IFAs who want to retain their place at the heart of the client relationship rather than outsource investment decisions to DFMs. The service is based on a fixed monthly fee rather than a percentage of client assets under management and the low-cost, multi-asset portfolios comprise mainly of passive ETFs and Index tracking funds with overall TERs of less than 60bps. Please e-mail me for further details.

  2. Why don’t providers give Advisers access to a product training hub on the intranet and offer a suite of online product training programmes. This would minimise the expense on both parties in terms of time and physical cost

  3. I am not sure how many times I have seen comment like this. Either the Financial Press keep coming up with these stories because they think there is a problem in this area or IFA’s across the land have ignored the issue of Asset Allocation.

    The tools required to do this correctly have been around for a long while and of course we all should have been taking this area of advice very seriously.

    Asset Allocation, Product and Provider Selection, Implications and Understanding are something that all Advisers should be ‘well ahead of the game with”. For those of you that have managed to ignore it, good luck for the coming 2 years or so I think you may need it.

    For the rest of you, please tell me it’s not only our firm that has had this sorted for a good while now.

    Richard Smith – IFA and Tech Consultant.

  4. Further to my previous comment it is possible, depending on the overall system for a provider to create a portal on the internet i.e. a sub domain, that would allow access to their network of IFAs where they could peruse product material’s, access training portals or send queires.

  5. I thought product providers used the pin method of selection, or the more sophisticated dartboard and blindfold process.

    Some of the wealth managers I have encountered use the truly amazing “mouse and keyboard within a wrap” asset allocation lucky dip.

    It makes oi larf..

  6. We take a risk assessment questionnaire from the client, then utilise one of the online asset allocation programmes to input the relevant details; then select the funds on past performance,S&P or Morningstar ratings,fund manager’s period of tenure etc.
    I can only echo Richard’s comment above-surely everyone does something similar?

  7. Couldnt agree more with Richard (Smith). Having said that it is imperative you have the best performing funds (managed by leading fund managers) within that AA.

    Having re-reviewed portfolios of some IFAs who have been in business a number of years, the number of times I’ve seen dog funds/investments within a substantive portfolio alarms me. Surely as an IFA you can use TrustNet, M-Star, CityWire, etc etc to find decent performers/managers??

    And don’t believe that FSA cr*p of ‘past performance is no guide to that in the future’ – sure investment values change (doh!!) – but generally if a FM is CityWire rated and./or has a pedigree, his fund will be above average (sector-wise) over med-long term, .viz R Geffen, A Bolton, J Chatfield-Roberts, etc

  8. Why don’t Pru just add the phrase “so buy some off the shelf rubbish from us before you know on the next door” to their “research”?!?

    The answer is not “get it from the Provider”. An *independent* adviser should be encouraged to research and think about these things themselves, not “outsource” to yesterday’s Life Office.

    I like Richard’s and Blair’s comments. What we need (e.g. from AIFA or the “professional bodies”) is for some “industry guidance” with FSA confirmation that gives IFAs some clear regulatory comfort if they use various methods like this.

  9. Most product provider asset allocation tools are deficient in one way or another. Many only use returns data going back 10 years, others openly admit to manipulating the results to promote their own fund range. In addition to this the RDR stresses the need for advisers to look at all investment vehicles including ETFs. How will morningstar and manager tenure help you here. What about consistency, do all your advisers recommend the same funds for each asset class, if not, why not? What about TCF? If you are only recommending active funds can you demonstrate the outperformance over an equally weighted passive portfolio?

    Surely everyone does something similar??

    If only it were so simple…..

  10. The FSA should know better. I’ve recently heard that the FSA upheld a complaint where a multi manager fund was selcted as a core holding but was considered to be lacking in diverstity as it was just one multi manager. There is a startling level of ignorance of how retail funds have developed. To take things a stage further, the current harmonising trends of the tradtional asset classes is causing some academics to revisit the merits of basic diversification.

    The risk is perhaps insufficient attention to asset allocation, but it is more likely that it is neglect of a clients fund choices that causes most concern. Is an investor insuficciently diversified if they are making 22% p.a. compound over 5 years from being in one fund? Perhaps, but would they complain?? I think it right that we always keep adding to our well developed knowledge. On the whole we’re a pretty well informed lot. I can’t see that if we learn a few more theories, that we will stop clients losing money.

  11. Process: Risk Profile Questionnaire, Asset Allocation Tool, funds selected using Fund Ratings, Manager Ratings, Past Performance etc. etc.

    Do you really think that if you follow this process you are ok?!!

    How many of you who follow this process do any of the following after you’ve done the above:

    – Rebalance portfolios at regular intervals throughout the year in line with clients’ attitudes to risk
    – Have a buy AND sell list of funds
    – Keep track of fund manager movements
    – Follow the investment approach of well known fund managers to ensure they do not deviate from this

    You may do none of this, you may do some – but even if you do this is probably not as regular as it needs to be and in line with TCF.

    What providers are coming out with now offers you both the front end and back end processes.

    Whether you agree with set portfolios or not – it makes you watertight from a regulatory angle and takes away that ‘finger in the air’ element completely.

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