Cost of delay represents the economic impact of a delay in acting on an investment portfolio, and in times of market volatility, identical to the current scenario, it can be a very costly mistake for advisers.
In order to measure the real cost of delay in the current market, HUB24 recently ran a study, the results of which were astonishing, Brett Mennie, the head of managed portfolios at HUB24, said in an upcoming ifa podcast.
“What we did is we took actual live data out of the HUB managed portfolios for a particular asset manager and looked at the changes that they made when COVID hit,” Mr Mennie said.
“Then we looked at what would’ve happened if that wasn’t an instant change, which is done on the day of the decision because of the platform’s ability to do the instructions.
“Looking at whether it took one, two, four, or six weeks in delay, which often can happen when a practice is doing that manually administratively, ROAs, meetings with clients, consent, etc. And we found over one week of delay, 42 per cent of the benefit was gone.”
Over a six-week period, that 42 per cent turned into 60 per cent.
“That speed to market is absolutely critical when you have changes in the economy markets,” Mr Mennie stressed.
“To have to do ROAs every four weeks, if the market bounces back up or the client’s portfolio needs, rebalancing is a real challenge for practices. But it’s solved by managed accounts through the use of technology.”
Looking back at his 30 years in the industry, Mr Mennie explained that volatile periods are cyclical.
“The feedback we get from advice practices using managed accounts in these volatile times is they feel more in control of the outcomes of clients,” he said.
“So I think for running a really good practice, you need those systems, and you need technology to work for you.”
To hear more from Mr Mennie on managed accounts, tune into our podcast later this week.
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