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It has been called adviser's alpha. This is the value that quality financial advisers can add by advising their clients on the fundamentals of sound wealth management.



             


Such fundamentals include setting an appropriate asset allocation and diversification for a portfolio, minimising investment management costs, maximising a portfolio's tax efficiency and adopting a long-term, disciplined approach to investing.


Adviser alpha* has nothing to do with trying to beat the investment markets.


The Adviser Products and Marketing Needs Report: August 2015 - recently publicly released by researcher Investment Trends - confirms that advisers are giving a greater priority to portfolio diversification and cost effectiveness - two of the core contributions to adviser's alpha.


Further, Investment Trends found that financial planners are increasingly turning to exchange traded funds (ETFs) and traditional index funds to provide that desired diversification and low-cost investment management to their clients.


The study, which is based on a survey of 676 financial planners, primarily focuses on asset allocation trends.


The key findings in the report include:


  • Planners are increasingly favouring unlisted managed funds and ETFs for new client investments, and "moving away from stock picking”.
  • The "war chest” of short-term cash held by the clients of financial planners is decreasing as planners and their clients seek growth in a low-rate environment.
  • Planners placed 39 per cent of new client investments in international assets over the 12 months to August - up from 33 per cent for the previous 12 months. This is the highest level since the inception of this particular Investment Trends study and is despite the fall in the value of the Australian dollar.
  • Planners placed 15 per cent of new client investments into index managed funds, including ETFs, over the 12 months to August. Again, this is the highest level since the inception of the study.

During difficult markets in particular, many astute investors concentrate with the guidance of their advisers on the aspects of investing that are within their control. These include their portfolio's asset allocation, diversification and cost efficiency, which are, interestingly, critical factors highlighted in the Investment Trends study.


Certainly, investors have no control over the emotions of other investors, interest rates and market movements. However, they can ensure that their own investment decisions are not emotionally driven and are based on working towards their long-term goals.


* Putting a value on your value: Quantifying Vanguard Adviser's Alpha, Australian edition, 2015.


 


By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
17 November 2015




10th-December-2015
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