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Russell eases asset allocation confusion

Russell Investments is pitching its new multi-manager funds as a solution to the potential problems that asset allocation tools can throw up for advisers who use more than one platform or provider.

The company did some research last year which involved using tools from companies such as Axa, Cofunds, Fidelity, Skandia and Standard Life, to create an asset allocation model for a balanced risk profile.

It found that exposure to each asset class varied considerably, with UK equity weightings ranging from 14 to 37 per cent, fixed interest from 12 to 50 per cent and property between 5 and 30 per cent.

Russell says that none of the asset allocation models is wrong, but advisers who use more than one tool would have a problem. It sees asset allocation as the first of many important decisions IFAs make for their clients, because if the portfolio contains too much, or too little risk, it will not fulfil clients’ needs.

Advisers can implement asset allocation by choosing their own funds, monitoring them and changing them as necessary, or using multi-asset funds, including fund of funds. Russell says a problem with the first route is that it may be time consuming and costly for advisers, even if they have the necessary investment expertise, as it could reduce the time spent on financial planning,

The problem with the second approach is that multi-asset funds may not fit, or may deviate from, asset allocation models that advisers choose for clients.

Russell Investments managing director—UK private client services Peter Hugh-Smith says: “We want to sit between the two by providing flexibility in implementation of asset allocation without delivering complexity.

“We offer four funds that are primarily building blocks that can be combined in any proportion, or with other funds. We think most advisers should maintain control of asset allocation as not doing so will not necessarily support the advice proposition or justify the advice fee.”

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