Recent data showing 80 per cent of Australian active managers underperformed in 2016 is “no surprise”, and similar findings have been “replicated the world over”, says Implemented Portfolios.
Reacting to the publication of the S&P Dow Jones Indices 2016 SPIVA Scorecard this week, Implemented Portfolios chief executive for corporate development Santi Burridge questioned the benefits of active management.
The SPIVA data found more than 80 per cent of Australian active fund managers failed to beat their comparable benchmarks in the 10 years to 31 December 2016.
"For too long the advice industry and their clients have being paying for something that simply does not exist – that is, performance alpha," Mr Burridge said.
"This has been done to the detriment of the advice industry as historically it has been the fund mangers being paid the most and the advisers the least (or even worse, last)."
Financial advice businesses should focus on 'controllable alpha' rather chasing active returns, Mr Burridge said.
"We can’t control performance but we can control tax, the clients journey and preferences and their asset allocation," he said.
At the same time, financial advisers ought to be wary about switching into a managed account structure only to continue using active funds management products, Mr Burridge said.
"It is the next big mistake we are falling for and in light of the SPIVA report we should all take notice. Simply changing the business model from picking opaque managed funds to transparent managed funds (i.e. separately managed accounts) is going to achieve nothing," he said.