Scientific research a ‘must have’ for asset allocation

22 May 2008 Gareth Stokes

If you’re one of the many independent financial advisers (IFAs) juggling customer service and compliance with the vital role of fund choice for investor portfolios then consider yourself warned. Sooner or later you’re going to drop one of the balls – and whichever one it is you could cause serious long-term damage to your business and reputation. A sensible strategy is to concentrate your efforts on the heart of your practice (your clients) while finding suitable ‘partners’ to assist with the labour intensive and tricky areas of investment decision-making and compliance.

To find solutions to the investment side of the coin FAnews Online visited Momentum Investment Consulting (MIC) at Momentum’s head office in Centurion recently. We wanted to find out more about the investment consulting services they offer. And we wanted to know how IFAs can take advantage of these services. MIC offers “specialist investment consulting to select IFAs who seek to retain the service of a dedicated investment advisory team.” This team is available “to oversee and provide assistance with investor portfolios.” And the level of service and management is tailor-made to suit the need of each IFA.

The first step is always to review existing portfolios

Momentum established the unit to answer two needs. The first was to create a financial planner advice facility, and the second to create a tangible value-add to the traditional Momentum Wealth client. It fills a niche requirement in offering bespoke management solutions to portfolios. The focus is on recognising the unique requirements of brokers rather than adopting the ‘take it or leave it’ approach of many of the bigger investment consulting firms.

MIC offers complete transparency in terms of charges and asset allocation and hopes this will give it an edge in today’s competitive asset management environment. It is supported by the experienced teams at Advantage Asset Management and RMB Asset Management International.

The first function MIC will perform for new IFA clients is a complete review of their existing client portfolios. They will strive to answer three questions during this process. The first is to determine the asset allocation in the existing fund mix. The second is to identify any concerns with the funds used in the portfolio. And the third is to determine whether minor changes can enhance the portfolio’s risk to return properties.

Integration of investment consulting services

Once the review is complete the focus moves to integrating the MIC offering with the IFAs investment committee. MIC will supply, among other services:

· Detailed quantitative and qualitative research of asset classes, styles and managers & funds covering both domestic and international markets.

· Due diligence reports on the recommended managers and their funds.

· Optimal combinations of approved managers and funds to achieve (and outperform) the relevant portfolio benchmarks.

Full control through discretionary management

Apart from the transparency mentioned earlier the IFA has the peace of mind of benefiting from a bespoke (tailor made) investment portfolio. This portfolio can include domestic or international funds, or a combination of them, all packaged under the Momentum brand. MIC hopes that its “differentiated approach to strategic asset allocation” will reduce volatility and deliver more predictable returns. Tax issues around IFA portfolios will also be a thing of the past as  the MIC team selects the most efficient and cost effective structures through which to manage the portfolio. Options include Collective Investment Schemes and Offshore Funds.

But it doesn’t end there. Every IFA will tell you that one of the keys to a successful practice is quick and efficient communication with clients. To this end MIC will provide ongoing feedback to the IFA (at least monthly) and will create “tailored fact sheets and investor newsletters.” These can in turn be distributed to the IFA’s clients. MIC will also assist with investor seminars where required.

Today’s regulatory environment makes it increasingly difficult for an IFA to establish and maintain his own investment team. And that’s going to make asset management ‘shops’ like MIC more popular going forward. If portfolio management is a big issue at your firm this is certainly an option worth considering.

Editor’s thoughts:
Pooled investor funds are essential to creating the critical mass required to be competitive in the modern day asset management environment. RMB Asset Management International (with $3.8bn under management) and Advantage Asset Managers (with R40bn under management) are examples of the critical mass required to be successful. Are you big enough to manage your investor portfolios – and what are the major challenges facing your practice with regards fund selection and investor portfolio management? Send your comments to, or add them below.

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