The role of the financial adviser has changed dramatically in recent years due to the proliferation of investment products and downward pressure on fees.
To set themselves apart in this new landscape, financial advisers are increasingly employing low-cost passive investment products alongside the expertise of discretionary fund managers as they seek to meet or exceed the long-term goals of their clients.
In a recent CoreShares-hosted webinar, local wealth managers noted that shifting client demands have prompted financial advisers to adapt.
Partly due to the relatively low returns from the South African market in recent years, clients have become more fee-sensitive, and are looking for outperformance with reduced costs.
In response, financial advisers are increasingly incorporating passive investment strategies – including exchange-traded funds (ETFs) – and discretionary fund management services into client portfolios.
The passive component reduces overall portfolio costs, improves diversification, and enhances both the predictability of returns as well as transparency.
On the other hand, the actively managed component is aimed at delivering above-market returns. Due to the wide range of investment products and stocks in the market today, and how difficult it is to beat the market, financial advisers are increasingly leaving the active manager selection process in the hands of specialised discretionary fund managers.
This promotes efficiencies and means financial advisers can focus their efforts on providing sound advice and on keeping their clients invested through the cycle so that they remain aligned to their long-term financial goals.
Debra Slabber, Business Development Manager at Morningstar Investment Management, said on the webinar that the firm’s research shows that clients look for advisers who can help them reach their financial goals, who have the relevant skills and knowledge, and who communicate and explain financial concepts well and in an understandable manner.
Morningstar’s research also shows that it is important for advisers to ensure that expectations are aligned and clearly communicated upfront, meaning goal setting is an essential undertaking.
To achieve those goals, advisers have a critical role to play in encouraging investors to ‘stay the course’ – to remain invested – and to avoid making impulsive decisions when market conditions change. This means that ongoing communication is an important responsibility for the modern financial adviser, particularly when markets move lower.
The role of passive strategies
Michelle Noth, Client Coverage Executive at CoreShares Asset Management, noted that in the five years to end-June 2020, 95% of active managers underperformed the S&P SA 50 Index after fees. Since only 5% of managers beat the benchmark, wealth managers need to carefully select the managers they work with.
This also means that it makes sense for investors to use passive products in the core of their portfolios to deliver market-related returns in a low-cost manner. ETFs and other passive strategies can be blended with an actively managed component in an effort to boost returns.
Passive strategies deliver more predictable returns, and importantly, they help to keep clients invested, particularly through turbulent market conditions. As an example, many investors sold their equity holdings during the sharp downturn in early 2020 – and then missed out on the strong recovery rally that followed.
We invite you to watch this on-demand webinar to explore these concepts further:
Featuring | Overview |
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Hosts![]() Michelle NothCoreShares![]() Debra SlabberMorningstar Investment Management |
The changing role of the modern financial advisor: Tools and TipsLearning outcomes:
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Password: PassporttoPassive#3 |
Your Passport to Passive is a series of exclusive webinars which take an in-depth look at the pros and cons of passive investing. We unpack what it really means and debunk old myths using real world examples, so you can properly understand all the benefits of this investment strategy. It’s a must for IFAs, fund buyers and portfolio managers alike.
Read more about and access the recordings of the other three webinars in the series: