Advisers recommending multi-asset funds for retirement clients at the expense of more complex models, says Aegon research
Aegon research into the latest trends and adviser attitudes in the retirement advice industry shows there has been a significant increase in use of multi-asset funds over the last year, with more complex products such as model portfolios and in-house bespoke models becoming less popular.
The research is part of the report – Managing Lifetime Wealth: Retirement planning in the UK, which reveals that 56 per cent of advisers ‘always’ or ‘often’ recommend multi asset or multi-manger funds for clients in drawdown, a 56 per cent increase year on year (56 per cent in 2021 vs 36 per cent in 2020). The research also shows over one in five (22 per cent) advisers will increase use of multi-asset or multi-manager funds over the next three years for retirement clients, compared to only 5 per cent who plan to decrease ‘slightly’.
The move to multi-asset or multi-manger funds reflects, in part, the challenges advisers face in running and monitoring more complex models, such as in-house risk rated model portfolios and bespoke portfolios, which have seen use decrease by 9 per cent and 17 per cent respectively since last year (Jan 2020). Advisers, particularly within smaller firms, cite the operational challenges of managing these portfolios on an advisory basis and the business risk which comes from the increased regulatory focus.
Key legislative changes, such as MIFID II and PROD, have contributed to the trend towards simpler and lower-cost investment strategies that are easier for advisers to explain to clients and represent value for money. This was highlighted in the qualitative interviews for this research**, where advisers suggested they are turning to multi-asset funds due to affordability and simplicity. Furthermore, as clients increasingly look towards ESG investing, there has been an emergence of low-cost multi-assets funds which have specific ESG considerations built into them.
Tim Orton, Managing Director of Investment Solutions at Aegon, says: “Multi-asset funds have grown hugely in popularity in recent years. These funds can offer investors a well-diversified portfolio that manages risk over the long-term at a competitive price. For retirement clients, advisers are increasingly turning to these funds to grow assets and provide income in drawdown, rather than more complex and costly alternatives where value for money is more difficult to demonstrate.
“Robust multi-asset fund governance also makes it easier for advisers to meet their regulatory requirements, something that’s been front of mind with the introduction of MIFID II and PROD requirements.”