Equities are not top of mind for many financial advisers at the moment but the IFA of the future will need to be part fund manager, with a close eye on both risk and return.
This is the view of Instreet managing director George Lucas, who says the days of the retail end of the market being all about returns are over.
While Lucas has a vested interest in risk with his boutique fund manager currently pushing a new service, Instreet Portfolio Check-Up, he claims too few financial planners understand the nature of market, sector and company specific risk when picking stocks.
“We have been surprised at how many advisers assess market risk in a very rudimentary way,” he says.
Managing risk has typically been the preserve of the institutional investor with financial planners traditionally relying on fund managers to manage risk within equity products.
However, Future of Financial Advice (FoFA) “best interest” provisions put the emphasis on the adviser to prove they are an expert in all aspects of their business, including risk for financial advisors who handle direct share and ETF portfolios.
Instreet Portfolio Check-Up will be marketed to practices and dealer groups as a service that gives financial advisors the ability to ‘check-up’ and quantify the investment risks in their clients’ portfolios.
Particularly it will target IFAs with SMSF clients wanting tailored analysis of share, hybrids and ETF portfolios.
“We can quantify expected portfolio performance for different market conditions,” says Lucas.
“Too often we find advisers telling clients: ‘You could lose everything by being invested in equities’, which is very unlikely so clearly risk is not being properly communicated.”
If nothing else the service also provides a paper trail to show that the client was taken through best and worst case scenarios.
And, under the current draft of FoFA “best interest” provisions, showing that the risk profile of a client’s portfolio matched their risk appetite can only be useful if ASIC comes knocking.
