The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry will be a “watershed” moment for financial advice, said Activus Investment Advisors managing director Robert Talevski.
As a result, adviser’s investment decision-making processes will be placed under “intense scrutiny”, Mr Talevski said.
Investment consultants, who are typically used by advisers to review and select fund managers, are likely to be called upon to play an expanded role, he said.
In the past, advice groups have often opted for a totally outsourced model when it comes to investment consulting, Mr Talevski said.
Under this model, the consultants run the portfolios and strategy; covering asset allocation, manager selection, currency exposure, the investment committee and reporting.
But there is a new ‘hybrid’ model emerging whereby consultants work side-by-side with the advice group’s investment team and provide alternative views, Mr Talevski said.
“The partnership allows advisers and investment committees to back up their decisions with research, analysis and evidence-based decisions that enhance independence,” he said.
Professional indemnity insurers are also keen to see evidence of “sound, well-thought-out investment decision-making” within advice groups, Mr Talevski said.
He pointed to comments by principal of insurance broker MKM Partners, John Kelly, who said insurers look for evidence of a “disciplined, documented investment process”.
“[A significant amount of investment risk] can be mitigated by appointing well-resourced consultants with clear investment guidelines,” Mr Kelly said.
According to Mr Talevski, investment consultants are also moving beyond manager selection recommendation and providing “strategic tailored advice”.
“Finally, there is a growing appreciation among advisers, particularly those looking to build scale by taking on more clients, of the time and cost burden involved in making investment decisions,” Mr Talevski said.
“The less time advisers spend on worrying [about] making or changing investment decisions, the more they can focus on building deeper client relationships, meeting the increased regulatory demands and building scale in their practice.”
Here here. The next step in the maturity of the financial services industry is to stop the chest beating that independence somehow produces better client outcomes and the marketing of performance by industry funds by manipulating the growth components in their portfolios. It is quite laughable that voices within these same groups are calling for actions to make the industry more professional ?? Industry funds need to be called out for their appalling marketing techniques that are based on twisting the truth and the investment processes of independent groups need to be put under the microscope. Attribution analysis of the risks taken to obtain returns should be a core component of performance evaluation and comparison. It is extraordinary that this is not happening despite calls for a top 10 super fund list to be used for default purposes.
Agree on industry funds but there is little that says clients wouldn’t be better off without commission (independence).
It would appear the regulators don’t understand / are turning a blind eye to industry funds manipulating their asset classification so they can say they are “top performers”. It’s scandalous, but no-one seems to care. A “balanced” fund with a 98% allocation to growth assets, please? Explains the “top performance”
Agreed.It doesn’t stop there.Given many industry funds are not unitised what is the mechanism to ensure all running costs and advertising costs are included in investment performance ? If the stated admin fees of a few dollars per month don’t cover all costs ( how could they ? ) then how are these costs taken into account ? Also how are the valuations of their unlisted investments updated and held to account – particularly when they are being compared to retail funds which typically invest in listed property funds which are marked to market each day.