Financial advisers need a deeper level of understanding when it comes to asset classes and correlations in order to build allocations that will deliver better outcomes for clients, an advice director has said.
“Advisers are traditionally poor asset allocators in relation to getting the correlations right in their investments,” Neville Ward Advice co-owner and director Andrew Reeve-Parker told InvestorDaily.
“We’ve learnt the lessons through the global financial crisis and it’s really made us focus on being better portfolio managers.”
The construction of asset allocations must deliver an outcome no worse than what clients were prepared to lose, however, adviser understanding of asset classes was lacking, Reeve-Parker said.
“The most important thing is to look at the correlations of the assets you’re investing in,” he said.
“If you’re going long only into equities and you don’t think your client has the risk tolerance for it, but you think it’s best for them, you need to make sure that you’re demonstrating value and getting them to buy into the long-term notion.”
Two types of advisers were emerging – those who did not know enough about asset classes and would outsource to a multi-manager and those who were active advisers, he said.
Advisers should be doing their research on asset classes every day, while portfolios must also be reviewed throughout the day due to intraday price movements, he said.
“Advisers are finding that clients will roll in and out of their service based on what they’re looking for and want,” he said.
“I don’t think you can find a [specific adviser type] when you go through the initial process of finding one; clients find out for themselves how advisers deal with things.”
