Looking forward
My final conjecture does not reflect common practice and there are a number of reasons for this.
The first of these is that the enemy is us. To change we need to:
• Wrest power from current asset-allocation decision-makers and advisers who are driven by selfinterest and the illusion that having control will lead to better outcomes.
• Change the naive disclosure requirements that insist on allocating into asset classes.
• Take peer and career risk.
• Think about genuine sources of risk and return, without the security blanket of the benchmark.
• Live with the outcomes of independent processes.
• Find managers who can offer asset-allocation diversification. There are also two open technical challenges: how we design products to meet true investment objectives rather than simply reflect the investment approach and how we measure performance in terms of meeting objectives, rather than beating some index or peer group.
It is my view that diversifying the process and insights of asset allocation should lead to better outcomes for our ultimate clients, the mums and dads who need to defer their consumption for decades. The dominant roadblocks inhibiting this approach are the behavioural biases and agency effects that permeate our industry.
Chris Condon is the principal of Chris Condon Financial Services. An extended essay on this topic is available at http://ccfs.net.au.
