Investment philosophy and strategy are key to RIA recommendations
The leading factor underlying a registered investment advisor’s (RIA) decision to recommended one fund over another is clarity regarding the portfolio manager's investment philosophy and strategy.
That is according to a survey of more than 200 RIAs conducted by Aberdeen Asset Management.
The survey found that 59 per cent of investment advisors agree that clarity regarding the fund manager's investment philosophy and strategy is the most important attribute considered when recommending a mutual fund to a client. Historical returns (19 per cent), fund rankings (10 per cent), fund manager tenure (eight per cent) and brand name (three per cent) were other attributes considered by advisors, though of less importance.
"Simple, open and honest communication from the fund manager is of utmost importance to advisors when determining which funds to invest in on behalf of clients," says Mickey Janvier, head of wealth management, Americas, for Aberdeen Asset Management. "Fund managers that can clearly and concisely articulate their investment philosophy and strategy are more likely to garner interest from advisors and attract assets. While this seems simple in theory, many fund managers continue to undervalue the importance of clear and concise communication with advisors about how portfolios are invested. These managers will have a difficult time remaining relevant in an environment where transparency is king."
Two-thirds (67 per cent) of advisors surveyed agree that investment products have become increasingly difficult for clients to understand, compared to 33 per cent that did not believe investment products have shown an increase in complexity. However, the majority of advisors (67 per cent) also agree that these new, more complex and sophisticated products generally offer valuable benefits that can help clients achieve their investment objectives.
According to the survey, the number one way that advisors stay up to date on new products being introduced by the asset management industry is through their own online research (60 per cent). Industry trade publications (20 per cent), wholesalers (15 per cent) and industry conferences (five per cent) are other ways in which advisors stay in the know on the latest investment products and solutions.
Janvier says: "In a world that increasingly favours simplicity and rejects excessive complexity, fund managers who can effectively leverage digital channels to help advisors understand how portfolios are invested will be the biggest winners."
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