Dougal Guild

A lack of performance and confidence in markets is driving advisers away from fund managers according to findings from Investment Trends.

The latest annual ‘Adviser Product and Marketing Needs’ report was released last week and found that one-in-four advisers surveyed said they intend to stop using a fund manager over the next 12 months, with 43 per cent of those citing poor customer service as a factor.

Managed accounts and ETFs continue to gain popularity, with more new client money winning the allocation battle, but that comes at the expense of managed funds whose share of flows decreased from 45 per cent in 2021 to 36 per cent this year.

Investment Trends research director Dougal Guild tells Professional Planner the loss of direct flows to managed funds is still made up through other investment vehicles.

“Managed account portfolios also rely on elements of managed funds – it’s really about this switch between managed funds held directly versus managed funds being held by managed accounts or model portfolios,” Guild says.

“You just can’t look at the percentage drop into managed fund use because a lot of that managed fund use is now appearing in managed account portfolios.”

Lean times ahead

According to the survey, advisers expect an average of only 0.7 per cent in capital growth over the next year, down from 3.5 per cent a year ago.

The report found two thirds of advisers cite diversification as the top priority for selecting investments for clients, but advisers who are more attuned to economic conditions are more likely to prioritise liquidity, protection, and high-yield products.

Roughly half of the advisers surveyed cited economic conditions as having a significant impact on client portfolio construction.

The proportion of new client money going into cash, term deposits and other fixed income products has increased from nine per cent to 14 per cent, the highest it has been in years according to Investment Trends.

Guild says the economic conditions have led to an uptick of active investment products including in the ETF space.

“[There’s a] slight increase in portfolios being active but that’s across the product spectrum,” Guild says.

“When markets are more volatile there’s an increased demand for active management where advisers are looking for alpha in terms of portfolio returns in difficult markets.”