However, for some time now, consultants have been on the back foot as super funds have built bigger in-house investment teams and moved away from the traditional retainer model towards specialist consultants, often assembled into panels and paid for one-off projects. As funds increase in both size and sophistication, they are increasingly looking for specialist knowledge, and consultants have come under pressure to revamp their advice offerings to cater to this trend. The advent of DAA as a new asset allocation tool provides an opportunity for consultants to reaffirm their role as holistic adviser. JANA’s Marshman, says investors need to be wary of “fad diets”. DAA had a bit of a flavour about it of being a fad that would save investors in the future, because it would have in the recent past, he says. “Investing is about having a balance of views. If you concentrate on one aspect you can avoid seeing the big picture and the new opportunities. (DAA) is just one of the tools in the armoury of sensible investing,” Marshman says. “Investing is about finding opportunities and avoiding risk.
None of this stuff should be a religion. You don’t have to do something every day. Frontier’s Trafford-Walker believes some firms have responded to DAA from a business imperative perspective, but says the renewed focus on asset allocation is a welcome development. “When you’re a money manager or implemented consultant and your funds under management have gone down 20 per cent, your revenue has also gone down by 20 per cent, so you do need new sources of revenue and this looks like an easy thing to do,” she says. “But we would say: it’s just not that easy and from a client’s perspective they want to be certain the people they choose to do this for them have the right credentials. Getting your asset allocation right is one of the most important things a trustee group can do and it seems to me that more money spent on that versus picking managers and paying managers [is] a pretty good deal.” Russell Investments is one of a number of firms to recently launch a medium-term asset allocation strategy; however, investment strategist Andrew Pease says the team’s been working on the Enhanced Asset Allocation (EAA) service for the last decade.
Bringing together the “strategic tilting” process Russell applies across its diversified funds, and the ‘informed rebalancing’ service it has been providing to US institutional clients, EAA provides a disciplined approach for investors to respond to unsustainable market movements. “This shouldn’t be seen as a reaction to [the GFC],” Pease says. “We’ve been working on this since early 2006, when I joined Russell, and the team’s been working on it for the last decade.” Any fund embarking on a DAA path must be clear about their adviser’s philosophy on market timing and their process and decision-making framework for doing it, Pease says. “It’s not about picking the adviser with the most sophisticated valuation model,” he says. “The most important thing is understanding the underlying discipline.” Trafford-Walker says there’s a huge opportunity for consultants to make a big difference to member portfolios if they can get DAA right, but it’s not an easy skill.