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Product complexity abandoned

Money Management, 30 October 2009
Benjamin Levy

Financial planners are discarding complicated investment products because their complexity is preventing them from moving their clients’ investments quickly enough to take advantage of market upswings.

The development comes at the same time as research just released shows that financial planners are dropping complex investment products and taking up simpler options instead.

Wealth Insights managing director Vanessa McMahon said research showed financial planners were abandoning complex financial products in favour of tried-and-tested products that followed cash or domestic equities.

She explained that financial planners were shifting to ‘vanilla’ products because they were unable to lift their clients’ assets out of complex products and back into the market quickly enough to take advantage of a market upswing, a view with which George Lucas, managing director of Instreet Investment, agreed.

“They have a lot more paperwork to do… so therefore, it’s a lot harder for them to switch out of equities into cash, and if they don’t have a fund manager who’s doing that for them, then it can take a lot longer to do the asset allocation,” he said.

Indy Singh, managing director of Fiducian, said the over-engineering of many products meant that financial planners were unable to retrieve the investments, and as a result, were abandoning complicated investment products.

Planners look to cut client costs

Money Management, 29 September 2009

Mike Taylor

Wealth Insights managing director Vanessa McMahon said that her company’s surveying of financial planners as well as focus groups had revealed that there had been a definite squeeze on fees generated by both the global financial crisis (GFC) and clients’ increasing awareness of how planners are remunerated.

McMahon added that the planners had responded to this by looking to reduce their costs and then pass the savings on to their clients.

“I think one of the primary results has been that planners are now less interested in actively managed funds and more attracted to the lower costs offered by indexed funds,” she said.

“The view of clients, and therefore planners, is that if the active managers didn’t see the GFC coming, then why are they worth more than indexed funds?”

She said this trend was already being manifested in levels of demand for indexed products and exchange-traded funds, which offered lower member expense ratios.

“I think the changes have been subtle but are very likely here to stay,” McMahon said. “Planners have looked at where they can save costs, and there is a real attraction to an indexed product that has an MER of, say, 30 or 40 basis points when it is compared with an actively managed product that has an MER of as much as 110 basis points.”

She said that the trend away from actively managed products was easy to understand in circumstances where the performance of many indexed products had been as good or even better than the actively managed products.

McMahon said she believed it was likely the shift away from higher cost products would ultimately impact dealer groups in the form of lower rebates.