Institutional pricing permeating the retail market and a proliferation of investment products will present financial planners with major challenges, according to a presentation at the Professional Investment Services (PIS) annual conference in Hawaii.

The presentation, by Alan Schoenheimer, managing director of Russell Investment Group in Australia, looked at the likely knock-on effect for planners of the five major trends impacting funds management. These trends are: separation of manufacturing and distribution; separation of alpha and beta; retailisation of institutional market; institutionalisation of retail market; and the baby boomers entering retirement. Overall, the demand for advice will increase, offering planners many more potential clients. However, as even people without much money will need advice, particularly to choose a super fund, planners will need to be “really efficient”. Planners should also expect a lot more competition, especially from industry super funds which will try to keep their members forever. Schoenheimer predicts that independent advice will become the norm and planners will continually be required to demonstrate that they are acting independently. With a proliferation of products, particularly among what are currently known as alternatives, and the separation of alpha and beta, managers will increasingly charge performance fees, which will present a challenge to planners’ communication with clients. The new products include concentrated portfolios, long/short portfolios, alpha transfer products and opportunistic funds such as hedge funds. There will also be more boutique managers. Schoenheimer said that the media was “having a field day” with the battle between industry funds and commercial master trusts, thereby magnifying the effect of industry fund advertising focusing on low prices. This will drive increasing demand for institutional pricing of retail-style products. “Why would an investor who pays 0.85 per cent for workplace super pay 1.85 per cent or 2.85 per cent for any other investment?” he said. Schoenheimer believes that planners should concentrate on areas where they can demonstrate value add through structuring of taxation, super, social security, retirement and estate planning. He believes that multi-manager funds and new ‘lifestyle’ and ‘target date’ funds, which Russell provides, will make life easier for both investors and planners. While he clearly has a vested interest in this, the US evidence is that these types of bundled products, where risk is adjusted for an investor’s age, are growing at a rapid rate. It is also true that, to a large extent, planners have little or no control over investment outcomes, even when they help select direct investments for clients. So, it makes sense to concentrate on structuring, planning and the “nature of the product”, rather than trying to keep up with all the new product providers.

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