On Investing

Managers better start swimmin’

To quote the oft-maligned but brilliant lyricist Bob Dylan: “The times they are a-changin’” – and fund managers need to take note.  Every time we start working on the latest quarterly Adviser Platform and Distribution Guide there are new market entrants to discuss, shifts in the investment strategies adopted by intermediaries, new flavour-of-the-month funds and sectors. Not to get over-philosophical, but it is astonishing how quickly the landscape changes.

The ongoing march towards centralised investment propositions has continued into the first quarter of this year. CIPs are very much on the lips of advisers, providers and the regulator. Model portfolios were used for 42 per cent of an adviser’s clients. Of these, 10 per cent were entirely outsourced and 32 per cent were governed by internal investment committees. Use of models is on the rise in particular for clients with ample portfolios of £100-500k (up 4 per cent) and £1m-plus (up 6 per cent).

Perhaps unsurprisingly, the use of multi manager has declined across client segments and is now used on average for 19 per cent of clients, compared with 27 per cent a year ago – and this percentage falls to a relatively meek 9 per cent for clients with portfolios of between £500k and £1m. With the near-daunting array of options in the multi-asset space, it is becoming ever more difficult for advisers to spot quality, and for providers to stand out in the crowd.

Now that the RDR dust is beginning to settle, will adviser propositions include an execution-only route, to service certain types of clients?

Some 26 per cent will look for execution-only service from platforms in 2013, based on perception that this is the direction that the market is taking. However advisers are fairly tentative in exploring this option in greater depth, knowing that profitability will be a challenge and that it could prove time-consuming to find a solution that is fit for purpose. Those against the idea may feel that execution-only goes against advisers’ core belief in ‘the value of advice’, or be wary of the regulatory quandary regarding ‘is it advice or not’ when you are charging for it.

With advisers still engaging in fund picking for on average 31 per cent of their clients, it is as important as it has ever been to hear from them what products they are considering for them. Other than mutual funds (unit trusts/Oeics), cash products are the most likely to be included in client portfolios this year (53 per cent), followed by bonds (42 per cent) and investment trusts (41 per cent).

Exchange traded funds also appear to be a relatively appealing feature in the portfolio mix, with 38 per cent of advisers likely to include these. In terms of ‘big change’, equities have seen a real boost in propensity to use – up to 37 per cent from 27 per cent in the previous quarter. There are also upward shifts in expectation to include other types of investment vehicle, which may ultimately be driven by some advisers’ desire to remain independent. Watch this space for how many actually will remain so in 12-18 months’ time.

Turning to sectors, the UK takes both first and second place on the list of highest selling IMA sectors on-platform during the first quarter, with UK All Companies and UK Equity Income; these took the second and fifth spots respectively last quarter. For the other sectors to make the top five for highest sales, “The name’s Bond” – Sterling Strategic, Sterling Corporate and Global.

The top selling fund on-platform in the first quarter was Standard Life Investments’ GARS fund, with Invesco’s High Income and Dimensional’s Global Short-Dated Bond funds hot on its tail. None of these made the top three in the fourth quarter of 2012 – in fact Dimensional was nowhere on the top 20 to be seen. First State’s  Global Emerging Markets Leaders and Asia Pacific Leaders are the fourth and fifth highest sellers on platforms respectively.

With £6.72bn new business on platforms in the first quarter and 68 per cent of new adviser business held on-platform, fund managers would be foolish not to keep a keen eye on developments in this market.

To close with a little folksy advice from Dylan: “Come gather ‘round people/ Wherever you roam/ And admit that the waters/ Around you have grown/ If your time to you/ Is worth savin’/ Then you better start swimmin’/ Or you’ll sink like a stone”.

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