Evolving advice
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”.