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Single-solution investment products likely to see growth in South Africa

26 October 2016 Robin Johnson, Nedgroup Investments
Robin Johnson, the new Head of Investments at Nedgroup Investments.

Robin Johnson, the new Head of Investments at Nedgroup Investments.

As the focus on costs in the financial industry increases and with legislation such as the Retail Distribution Review (RDR) on the horizon, asset managers are anticipating a shift towards single-solution, multi-asset investment products.

This is according to Robin Johnson, Head of Investments at Nedgroup Investments who says that based on the RDR implementation in the UK and the ramifications, there is definitely a shift in the industry towards in-house solution suites for clients seeking a consolidated holistic offering.

“The increasing focus by advisors on quality advice and risk-rated solutions is leading to greater demand for solutions to meet individual client needs. We believe that post-RDR in South Africa, advisors will gravitate towards multi-asset funds that enable them to match each client’s risk appetite or objective to an appropriate range of risk-rated products,” he says.

According to Johnson, this is likely to take the form of centralised proposition which packages a portfolio of funds within a single ‘solution’ that may include ETFs, traditional managed funds, as well as multi-asset funds.

Johnson says a major factor driving this shift is a change in outlook among financial advisers who are realising that their true value for clients lies in understanding clients’ needs and constructing an appropriate solution for their entire investment horizon rather than chasing top performing investment managers.

“In our view, post-RDR, advisors will start to remodel services to meet different client expectations once upfront fees are levied. To achieve a sustainable business, advisors will need to focus on developing and maintaining strong relationships with clients and businesses, while adopting a more holistic view of their clients’ portfolios and investment needs. We’re already seeing increased demand for investments which think about outcomes rather than beating specific benchmarks.”

In line with this, Johnson says, there is growing demand for a mixture of passively-managed, lower cost products and actively-managed funds.

“Risk-based, multi-asset products are becoming an increasingly popular time-saving device for advisers who shift the focus toward investment objectives or outcomes, particularly for cost conscious clients. The challenge is to provide sufficiently diversified exposure through a transparent lower-cost approach when compared with a building block style of portfolio allocation,” he says.

“Furthermore, for clients with smaller amounts to invest, a multi-asset fund is ideal to provide the core of a portfolio, especially as they embark on a long term investment journey, such as saving for retirement.”

According to Johnson, there is also an emphasis on active asset allocation decisions within multi-asset products that makes the products so attractive. Accessing the expertise of seasoned investment professionals, who will take the decision when to increase or decrease the underlying risk exposures.

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