A small group of financial planners and funds managers are forming a national association to promote the benefits of alternative investments and target return strategies to the government and other regulators.
Principal at financial planning practice Reid McGill and director of consultancy firm Target Risk Funds, Philip Reid is spearheading the group, which has been tentatively named the Real Return Users Group.
So far around six Australian Financial Services licensees and a handful of funds managers have expressed an interest in being part of the group, which will meet for the second time on December 6 to formalise arrangements.
Reid said the traditional approach to portfolio construction, known as strategic asset allocation, had failed to deliver optimal client outcomes while investment strategies which focused on return objectives and level of risk were more beneficial and appropriate for clients and also created a competitive advantage for advisers.
He said the real return movement faced serious opposition from the government, the Australian Securities and Investments Commission and the Financial Ombudsman Service, as well as Professional Indemnity insurers who considered these strategies to be high risk.
“Five years ago when I used to talk about alternative strategies, managed discretionary accounts and outsourcing investment management, I used to get run out of boardrooms but now we’re seeing more interest, particularly from the independently-owned part of the market,” Reid said.
“Nowadays almost every funds manager has an absolute return or real return strategy but there are a lot of issues around how best to access and implement these strategies in portfolios and via platforms. We need to resolve these issues by engaging with the regulators, research houses and product manufacturers to overcome these obstacles.”
Although many absolute return products are considered straight forward, according to Reid, the common use of derivatives in these strategies meant they were often classified by the regulator as hedge funds. This placed significant restrictions on who an adviser could recommend them to.
Details of the Real Return Users Group are still being finalised, however, advisers will likely pay a membership fee of around $1,000. Sponsorship packages will also be available to funds managers. Fees will help the group fund research projects and other lobby activities to raise awareness of risk-based approaches to portfolio construction.
Reid, who co-founded Dalton Nicol Reid and was formerly general manager of Fitzpatricks Private Wealth, said the group would look to form a board made up of advisers.
“This group will be run for advisers and by advisers,” he said. “There are a lot of advisers who want to implement these strategies, and achieve better outcomes for clients.”
