Why investment strategy transparency is key to adviser-client trust

The move into the mainstream for model portfolios has been well publicised, with the question now no longer whether they are used but how they’re being used, State Street Investment Management managing director, global head of advisory solutions and wealth intelligence, Brie Williams told ifa.

“Nearly every adviser uses model portfolios in some capacity today, but when we look back at the research as a whole, the integration stood out, not the adoption,” Williams said.

“I think that's the frontier on a go forward basis for growth development and upholding the fiduciary standard. We've seen this client conversation among advisers shift from should I use model portfolios to how does the use of model portfolios reflect my investment philosophy and the client promise?”

She noted that the Australian data has reinforced this idea, because individual investors working with a financial adviser have higher levels of satisfaction when they “understand why they're in a model”

“Their trust levels are more deeply ingrained, and there's more confidence in the overall value proposition,” Williams said.

“Being transparent about investment strategies; 87 per cent of Australian investors report that as a key benefit to working with a practice that uses model portfolios, 85 per cent indicated that they feel the items they need are being addressed and any issues that may come up are being resolved efficiently across the advisor client experience.

“And then 82 per cent, specific to the investment management process, feel that their portfolio and performance have been optimised as part of the investment management offer that they're taking advantage of.”

State Street ETF model portfolio strategist Sinead Schaffer added that the value of transparency for advisers and clients is something that is playing out both locally and abroad.

“You've got an evolution going on in the way that advisers are engaging with their clients, and equally, the way that clients or investors expect to be engaged with and the services that they're expecting from their adviser,” Schaffer told ifa.

“You've got that that kind of phenomenon going on at the moment, and then you have a solution like managed accounts that are coming to the market, and that meets that need really well, because it allows advisers to engage with their clients in the ways that they want to be engaged with.”

Significantly, she said, it allows advisers to “distance their value propositions from investment returns”, putting more of the focus on engagement with clients and the ever-present need for greater efficiency.

“People are trying to run these really efficient practices here in Australia. They're running businesses as well as being financial advisers. But these solutions also fit really nicely,” Schaffer said.

“We know that when you have a managed account or a model portfolio implemented with a managed account, you're likely to have 30-35 per cent higher balances for your average client balance, and also larger client inflows.

“That, to us, suggests potentially like better profitability for your practice too. So, you've got business outcomes that are being met, you've got client outcomes that you've got being met, and then these phenomena all coming together.”

Ultimately, Williams added, advisers are moving to a model that puts greater emphasis on trust.

“It's the transparency and the comprehension of how the investment management process works, whether that's in a model or not, or a combination thereof,” she said.

“That it is a fair ask of the client and they really expect it of the relationship. I think that leads to a stronger engagement and deeper trust.”