The appointment of Lukasz de Pourbaix as chief investment officer of the newly created Lonsec Investment Solutions reflects changes taking place place in the investment landscape for financial planners, including the drive for increased efficiency and compliance controls.
Lonsec Investment Solutions brings together Lonsec’s managed funds and direct equities research with its portfolio construction services. De Pourbaix says the move is “not so much about [making] what we do simpler; it’s more how it can make what advisers do simpler”.
“It’ll be another way for advisers to access our model portfolio IP and they’ll have more choice in terms of how they access our IP,” he says.
“In terms of efficiency, it’s really technology that’s enabling that, while at the same time we are not issuing product, we’re simply providing our IP to technology providers such as managed accounts.”
De Pourbaix says a trend towards slimmer approved product ists and shifting responsibility for model portfolio construction from adviser to licensee “has been happening for a while now”.
“It’s happening for a number of reasons,” he says.
“One is a compliance reason. [Licensees] want greater consistency in terms of professional oversight in terms of the model portfolios that are being recommended to clients. And it’s also an efficiency piece as well.
“That trend has been going on for some time, and you have seen APLs generally – if they have been very wide – reduce in size. Again, that’s really down to largely a compliance function. If you’ve got, say, 800 funds on a APL and you’ve got a lot of legacy funds on there and you may have funds that have got no FUM [funds under management], or very low FUM, you’ve got to have oversight of all those funds. And to do that effectively for 800 funds for a dealer group on an APL, it can become pretty unwieldy.”
Compatible with clients’ best interests
De Pourbaix says the simplification of APLs and more widespread use of model portfolios and managed account structures is compatible with the regulatory requirements for advisers to serve their clients’ best interests.
“First and foremost, the thing that is important is whatever advice given to the client meets their needs and is in their best interests. I don’t think you bypass that; but I think that can go hand-in-hand with a more robust way of doing a model portfolio. There’s certainly a broad range of model portfolios that can cater to a variety of different client needs. And over time you’ll see more tailoring around models as well, to cater to a whole variety of needs, whether it be income, for example; or ESG; whatever it may be.”
De Pourbaix says there is no doubt that the focus on compliance and efficiency has been driven by regulatory changes, and specifically by the Future of Financial Advice (FoFA) rules.
“There’s more disclosure requirements around providing advice,” de Pourbaix says.
“That’s a good thing, but it also does require more resourcing and time from an advice perspective.
“Where managed accounts can assist in that [is] even a simple thing: if you do a switch in a model portfolio via a managed account structure, you don’t have to do an RoA [record of advice], for example, to effect that advice, because it does it seamlessly. If you have a large client base, as an adviser, rather than doing a switch in terms of countless RoAs, then that can certainly allow them effectively to focus more on spending time with the clients.”
De Pourbaix notes that in many groups that use model portfolios, people often tend to gravitate away from the models over time, whether as an intended consequence or not.
“They are effectively not following the models any more, for whatever reason, and with a managed account or similar structures, effectively that risk is reduced because you’re either in the model or you are not.
“Things like rebalancing, et cetera, are done; and if there is a switch required, that’s done in automated fashion as well. And that’s just managed accounts – in the future, no doubt there will be other technology that will facilitate model portfolios in different ways as well. It’s gearing up for the future as well.”
Improving efficiency and focus on clients
De Pourbaix (pictured) says the new corporate structure reflects the work that Lonsec has been doing in recent times, and he says his task in the new role starts with “looking at how can [advisers] improve business efficiency and focus on clients as well”.
“Initially it is going to be looking at our existing model portfolios, across managed fund models as well as listed equity models that we have across the business, and looking at managed accounts as a vehicle for disseminating those portfolios,” he says.
“Generally our direct models are already accessible on a number of managed account platforms and we’ve started that process with the managed funds strategies as well. That’s really the start of it.
“Technology has evolved in that space as well, and continues to evolve with the various managed account providers in the market. We think that trend is most likely going to continue. But the other thing to keep in mind is our research covers such a broad range of investments and investment types there’s an opportunity to say, we’ve got existing models but what can we do in the future as well, whether it’s SMAs, whether it’s ETFs, whether it’s LICs, and of course, managed funds and types of managed funds coming out to the market?
“It’s evolving continually so there’s certainly an opportunity to leverage that up and to package it in different types of portfolios.”
