Limitations in the risk and asset allocation tools used by advisers are driving them to outsource investment to discretionary fund managers (DFMs) in order to be compliant, according to Ascentric.
Speaking at the Defaqto DFM conference, Ascentric chief executive Hugo Thorman said that advisers are limited in their ability to service their client, both by the tools they use and the permissions they have.
He said ‘it was very difficult for advisers too move away from their tools’ when recommending rebalancing portfolios without a discretionary fund manager.
He gave an example: ‘Most advisers agree that bonds at the moment, whether sovereign or corporate, are priced high, and because of government moves it’s highly likely that the next movement will be down.’
‘But your risk tool will tell you that you need to have a chunky amount of a client's portfolio in bonds. The only person that could really take a different view is a DFM.
‘I would say that its very difficult for an adviser to take a brave view like that. Some of you will and it will be well documented but it always be a brave step and veer away from that [tool].’
After an adviser has set an asset allocation, the adviser cannot move the asset allocation until the client agrees and at times clients do not respond quickly enough, leaving the portfolio unbalanced, he said.
Governance was also stressed by Thorman: ‘It is everything that I’m absolutely sure that the regulator will be looking at in the third part of this year when they look to see how the retail distribution review is progressing.’
‘I do urge you to consider that everywhere you can.’