OPINION: Why managed funds are holding IFAs back

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There is a critical mass in term of FUM that a fund manager reaches where the sheer size of their portfolio forces them to invest only in larger capitalised shares to avoid materially moving share prices when investing. This may be a major reason why most fund managers track indexes and therefore perform in line with indexes.
We have demonstrated over the past few years that directly managing client funds can offer a superior differentiated performance to the masses – a clear value proposition.
As well as better performance, we believe clients are demanding more control over their funds. As information becomes more prevalent, investors are paying more attention to aspects such as the ethical composition of their portfolios and are demanding more strategic control over their assets. Managed funds offer neither client nor adviser control over where the funds are invested, how the funds are managed, nor how issues such as tax are managed. There is also no control over what other unit holders will do or how their actions will impact the remaining holders units.

What if a large amount of unit holders wanted to liquidate their holdings at the same time? What will happen to asset prices when the fund manager is forced to sell to satisfy redemptions? Will the good asset be left in the fund? Will redemptions be frozen and therefore will the client lose total control of their wealth?
High net worth demands: sustainable strategy

Most clients (and certainly high net worth clients) have an expectation that their adviser is managing their money. To build a business model that relies on ongoing revenues from client assets, yet not providing any real ongoing service or value to those assets, is a high risk model. It means having to use peripheral services such as reviews to justify ongoing fees – a strategy that many advisers have currently taken.

Not only is scale difficult with this type of model, but it means clients that do not see value in the offering (as many will as broader market education increases) could simply reduce or eliminate review meetings or other services to cut their fee – then what argument does the adviser have for maintaining the ongoing fee?

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  • Lets get real on 4/10/2012 1:42:22 PM

    So your 'special' value proposition is investment performance? Hope your numbers stack up.

  • Mel on 27/09/2012 7:13:23 PM

    My clients don't pay me to invest in managed funds, they pay me to give them an overall strategy that makes them financially better off in the long term. I thought we had already moved on from this "paying to provide an investment product" mentality?

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