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The relationship between financial planners and asset managers

03 July 2012 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

One of the discussions at the 2012 Annual Financial Planners Institute (FPI) Convention centred on the relationship between asset managers, financial planners and their clients. The investment panel discussion between Anne Cabot-Alletzhauser, head of Alex

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One of the most important lessons for financial planners is to ensure that their clients stick with their investment plan over the long term. “From a financial planning point of view financial planners do not give the fund managers enough time to get things right,” said Wood. It is human nature to become pessimistic during a market downturn and the tendency is to pull client funds from investments near the market bottom.

An inappropriately timed exit from an asset allocation unit trust fund, for example, leads to return decimation due to investors missing out on price recoveries on the equity portion of such investments. “You need to stick with your asset allocation decisions whether markets are up or down,” he said. Both financial planner and client must put their faith in the fund manager to maintain appropriate asset class weightings and enter and exit the market at the right time… They must accept that fund managers have the skill and experience required to perform either of these function regardless of market volatility.

“Asset managers manage risk,” said Cabot-Alletzhauser. “We do so by investing in reasonably priced assets and charging appropriate fees for our services.” She told the audience that the focus should always be on risk management over chasing return. Asset managers and financial planners share the goal of securing the risk premium in equities while insulating investors (clients) from market volatility.

An unhealthy obsession with short-term fund performance

Cabot-Alletzhauser was particularly outspoken about the industry’s obsession with short-term performance statistics. She warned that neither financial planner nor client had the luxury of time to determine whether a particular fund manager philosophy would pay off. “I find it remarkable that the industry measures asset manager value by out performance against some or other benchmark,” she said. “The real value in asset management is to establish a trust relationship with the investor (client) by convincing them that what we are doing is prudent, that we are fiduciary managers, and that we act in their best interests at all times.”

Asset managers should be remunerated for their ability to build this trust over the long term rather than their out performance of a predetermined benchmark. And instead of obsessing over which asset manager tops the three, five or 10-year performance table – an act that leads to unnecessary investment churn – financial planners should focus on keeping their clients invested in a particular fund for the long haul.

Moving in the right direction...

“A financial planner is moving in the right direction [if the focus is on] protecting the clients’ capital and managing client expectations,” said Paine. But she acknowledged the difficulty financial planners experienced in keeping clients invested through tough economic times… The Association of Savings and Investments (ASISA) Collective Investments Industry statistics for Q1 2012 recorded the smallest inflows to the unit industry in over a decade. “We have [also] seen R13 billion flowing out of money market funds, which suggests that people are liquidating investments to pay off debt or cover the cost of living,” she said. Her advice to financial planners was to stick with first principles when discussing investment plans with their clients: “Make sure that your planning decisions are right and then encourage your clients to stay invested over the long term!”

A financial planner needs to look beyond the investment environment to assist clients with day to day financial management decisions. “It is a travesty that financial planners have become so focused on a single aspect of what their clients are going through,” concluded Cabot-Alletzhauser. “There is a need, going forward, for financial planners to offer a more holistic solution by pulling together everything that contributes to the financial wellness of a client.” If you get the risk premium exposure and asset allocation decisions right, then the market will take care of the rest!

Editor’s thoughts: Numerous stock market surveys confirm the danger of jumping in and out of the market in response to short-term volatility. Those who frequently sell and repurchase shares miss out on valuable market gains. To maximise investment returns you need to invest your client’s capital in a sensible mix of asset classes for as long as possible. Would you agree that financial planners should focus less on return and more on keeping their clients invested for the long term? Add your comment below, or send it to


Added by Nickname, 04 Jul 2012
I suppose then, the general idea is that what works most of the time is nearly the opposite of what works in the long run?
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Added by Frank Agliotti, 03 Jul 2012
Dear Gareth, thank you for sharing this article. I agree that the role of the asset manager is to manage risk and the financial advisor to manage client behavior through challenging economic environements. This partnership between the asset manager, financial advisor and client is critical to the long term sustainability of all participants. However, we must not underestimate the financial impact this economic slow down has had on countries, corporates, business owners, professionals and the consumer. When a client requires an income to replace or supplement his income, the first step is to draw from investment strategies constructed to meet unforseen events and when that capital is consumed then the next step is to draw from discretionary investment strategies constructed for long term objectives. And at times this can be expensive to both the client, asset manager and financial advisor but when the client has no option then this will be the consequence. In closing there are four financial principles that discuss with my clients 1. Spend less than you earn 2. Have an Emergency Fund 3. Limit the use of debt 4. Save and Invest for the long term.
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Added by Frank Agliotti, 03 Jul 2012
Wealth is create in downward market cycles and compounded in upward market cycles. Investors timing the market is speculation which contributes to increased market volatility which we have experienced over the last few decades where as Investors or Asset Managers that research companies based on the economic characteristics that could generate wealth over the long term through share growth and dividends is the value proposition that the Asset Manager are rewarded for by earning fees and attracting higher nett flows within their respective financial period. Financial Advisors that focus on private wealth planning are able to incorporate analytical tools to measure and monitor the progress of the selected Asset Managers over the long term to ensure that their returns relative to risk are within reason based on the relative financial ratios used in their process. As Financial Advisors develop their practice in respect to Financial Planning with a focus on wealth planning their level of advisory service to their clients should include monitoring the progress of the respective Asset Managers relative to clients benchmark over the long term being real return. Yes we understand that CPI is not necessary a true reflection of ones future price increase, which may result in the need for advisors and clients to review budget and work towards increasing level of saving (growth phase) and reducing level of draw rate (income phase).
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