It's funny what we miss when we suddenly find ourselves in a completely unfamiliar situation. The social distancing that we're all living with (is it pessimistic of me to assume that we're still in lockdown when this article goes to print?) means that my usual weekly routine of travelling around the country has become a distant memory.
I miss travelling so much, even short journeys provide an opportunity for some headspace – anyone currently trying to balance work with home-schooling will know what I mean. I'm even starting to think that I'm missing traffic jams and roadworks, but maybe that's just cabin fever.
Having said all that, I've been pleasantly surprised at the relative ease with which I've managed to adapt to lockdown working, and impressed at how colleagues and clients alike have acclimatised to working remotely and continued to work pretty much as normal through these extraordinary times.
My role at RSMR means that I'm in daily contact with financial advisers from all around the country. I know how hard everyone is working to make sure that investors continue to receive high levels of service and the reassurance that's needed in these volatile times. Much has been said in recent years about robo-advice and the threat that this poses to the advice profession but right now, the value of having a personal connection to a trusted adviser (even if it's via Zoom rather than in person) who can empathise and help each client to see the bigger picture, is way beyond what any automated system could ever hope to provide.
Lockdown aside, what steps can an adviser take to maximise client facing time?
Well, that's where we come in.
A large of part of RSMR's work is designed to help advisers spend less time in the back office and more time managing client relationships. The adviser firms that RSMR works with, either through our discretionary models or our broader retainer relationships, recognise the benefit of outsourcing tasks such as fund research and portfolio management. It means that everyone is playing to their strengths; the adviser has the knowledge and skill to create sound financial plans for their clients and RSMR has the knowledge and resources to ensure that any investment plan is based on expertly assessed and rigorously applied research.
RSMR assesses funds based on a whole range of performance and risk data, but that's only part of the story. To add true value, we need to dig deeper to understand how a fund is managed, the processes that are followed and the likelihood of it 'doing what it says on the tin' in the future.
This is why we place greater emphasis on qualitative research and a one to one meeting with a fund manager is key to this – it enhances our understanding of a fund and provides the opportunity to ask OUR questions (not just the ones the fund manager wants to answer). We'll often have two or more meetings and send different members of the team to look at a fund from different angles. Preparation is important for these meetings to make sure that we're focused on the most important areas and can tease out the tiniest details.
Getting an understanding of a manager's career history is critical. We want to know why they were attracted to the fund management industry and what roles they've previously held. We look beyond the lead manager and find out about the other team members. All this helps create a picture of the overall team style and their motivations and will also show whether they have a real passion for the job.
It's also important to find out about the other responsibilities a manager has, to understand how much time is devoted to the fund. We look beyond the fund size and consider the total amount in the strategy; because liquidity can impact on performance, especially in less liquid markets. If the sub-fund is small, but the total amount of AUM in the strategy is large, then it might not be as nimble as it appears.
When considering performance, we look at the longer-term strategy on a discrete year basis. It demonstrates whether outperformance has been generated on a consistent basis, or just through one or two particularly strong years. In turn, this helps us to recognise when a fund might struggle.
In terms of the investment process, we look at how responsibilities in the team are divided, and how long the process has been in place. This helps us to determine if it's been tested through different economic cycles.
Finding out what a manager is trying to achieve is key – targeted alpha can vary between country/sector/stock so we need to identify what a manager is looking for in individual companies and what sell disciplines are in place – many fund managers find selling harder than buying.
Risk management is a meaningful part of the discussion so that we can visualise which controls are in place at country, sector, stock or market capitalisation levels. Finding out whether a manager uses tracking error or Var is significant, as is looking at minimum/maximum stock positions and whether leverage is being used in portfolio construction.
We will also ask about turnover. Turnover costs money, but some managers implement trading strategies successfully. If turnover shoots up at a time when a manager is underperforming, it can demonstrate a lack of conviction and indicate potential further underperformance.
Finally, we focus on a manager's current strategy and the types of positions held in the portfolio and we check that these fit with the process they've outlined. We look at whether the worst positions of the fund over the last 12 months are still held, and if so, why.
If all these questions (and more) are convincingly answered, then we'll decide whether to give the fund an RSMR rating, which in turn may also lead to it being selected for our portfolios.
As you can see, this is a lengthy process requiring expertise, time and resource. Which is why, if you're a firm that wants to be truly client centric, you should explore the benefits of outsourcing this vital part of the investment process.