Investment management service provider Implemented Portfolios recently undertook a study tour of US financial planning firms – facilitated by State Street – in which it became clear that the philosophy of outcomes-based financial planning has taken hold in the USA, with benefits being reaped by the registered independent adviser (RIA) community.
“As advisers, you talk about performance relative to a benchmark – that is gone in the USA,” Implemented Portfolios managing director Santi Burridge told a media event in Sydney yesterday. “[US advisers] have redefined the notion of performance … it all comes back to clients’ objectives and [whether] they have been met.”
‘Beta is the new alpha’ was a theme the study tour consistently heard, Mr Burridge said – a philosophy yet to fully take hold in Australia.
Mark Nagle, head of wealth management at AMP-aligned Treysta Wealth Management – who also took part in the study tour, along with other clients and associates of Implemented Portfolios – said Australia lags behind more advanced markets on this focus on risk management.
“I think perhaps because we are a younger nation, risk management has been less of a focus [in Australia],” Mr Nagle said. “But as the wealth ages, the demand will become more consistent with these developed markets.”
Mr Nagle said he has already begun seeing greater demand for adviser strategy that focuses on ‘beta’ over ‘alpha’ – a trend exacerbated by the global financial crisis (GFC).
“The GFC had some impact – plenty of ‘growth’ investors thought they had a tolerance for risk before they experienced the GFC,” he said.
Both Mr Burridge and Mr Nagle anticipated that this approach to financial planning strategy will increase in popularity in Australia but that some regulatory hurdles remain, such as the licensing regime for managed discretionary accounts.
