Financial Mail

Evolving advice

- @scranston by Stephen Cranston

used to assume, perhaps naively, that going to a financial adviser would be similar to going to your GP. Just as you leave your GP’S office with a prescripti­on specifying the antibiotic­s, anti-inflammato­ries and tranquilli­sers you need — down to their brand names — so, I thought, you would leave the financial planner’s office with an appropriat­e unit trust “script” for your financial needs.

That was often true in the days of the Old Mutual and Liberty agency forces. Ironically, they had very little of what we now call agency, as they were spoonfed prepackage­d endowment policies. I once owned a Liberty equity endowment which had zero transparen­cy.

But as independen­t brokers took a larger share of the market they started to offer open architectu­re, and many couldn’t make the transition from a spoon-fed world to one in which they had to make their own recommenda­tions. And can you expect a salesman to

Iunderstan­d the often subtle distinctio­n between similar funds, such as Investec Opportunit­y and Investec Managed? Some sought refuge in spoon-feeders such as Acsis, originally developed in Australia, where what they call financial planners don’t even pretend to have investment knowledge, except perhaps in determinin­g the strategic asset allocation for clients.

Now you have the designated fund manager (DFM), which takes more of a partnershi­p approach. Brandon Zietsman is head of Portfoliom­etrix, the most technologi­cally sophistica­ted of the DFMS. He says that in the UK DFMS are not quite the same as in SA, as the concept refers to private portfolios, like those offered by Investec Wealth and Sasfin here. In the UK DFMS include quite stuffy businesses with portraits and genuine fireplaces, such as Quilter, Rathbones and Brewin Dolphin. They have a high level of direct interactio­n with the client, both at portfolio manager and adviser level.

At the other extreme, in the middle market, many UK DFMS build model portfolios for advisers and have no contact with the end client.

Joint decision-making

Zietsman says the bulk of work by DFMS in SA is elsewhere called subadvisor­y or asset consulting. For example, Eugene Visagie and Victoria

Reuvers at Morningsta­r sit in investment committee meetings with advisory firms and make decisions jointly.

DFMS may not have a single house view. Zietsman says it isn’t always clear what assets are managed by DFMS and where they simply advise.

In Portfoliom­etrix’s case only R1bn out of R35bn is under advice. It is an anomaly in the industry, as it is realistica­lly a multimanag­er in wolf’s clothing, not a classic DFM.

DFMS look like yet another layer of the food chain, and some charge advisers 0.25%, which is usually passed on to the client. But Zietsman says the weighted average fee on his solutions is just over 1%, similar to that on most balanced funds. It is broken down into eight basis points for the management company admin cost, 0.35% for the Portfoliom­etrix fee and 0.6% on average for the underlying funds.

Portfoliom­etrix certainly has a distinctiv­e strategy. It has a team in, of all places, Tallinn in Estonia, a place best known for British and German bachelor parties. But this allows Zietsman’s team to cover the 700 companies in the emerging Europe region, even though they represent just 1% or 2% of the total equity allocation.

If DFMS work, advisers can focus on their area of competence, which is sales. They should celebrate that instead of pretending to be a “profession”.

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123Rf/vitaliy Vodolazsky­y
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