Multi-asset is currently king in the investment balancing act

There is a palpable excitement in firms that we are consulting with about the current trend for multi-asset solutions. It is amazing to witness the rare confluence of Providers' plans, intermediaries' preferences and consumer appetite – all in virtuous alignment. These products are being made to order, are a joy to recommend and are flying off the shelves.

When we crunch the data relating to recommendations made through the Synaptic system we see the following: a majority of funds flowing into the 'multi-asset' arena.

This underlines the fact that 'multi-asset' investing is not just a catch-all for customers with smaller amounts to invest, but are a core investment solution for a wider range of cases, including single premium bond / ISA and pension investments.

Chart 1 - Multi-asset investing

As many of the funds are relatively new, you may need to concentrate on those that have a greater track record, including performance through difficult market conditions.

We have been reading this week about the FCA's concerns about the lack of consistency in advice. For us this points to the difficulty that some firms are having in setting up robust due diligence, and establishing best practice. Some of our best customers have only come to us after they have been censured by the FCA for example. You must have the ability to evaluate investments in depth, including a full range of risk metrics and asset allocation. You need to be able to do research in the context of the products and platforms that are being recommended. You need to be able to maintain portfolios for research purposes so as not to rely exclusively on information from the Providers. Finally you need to be able to conduct independent risk assessments of your clients and their investments, preferably with access to stochastic metrics.

The Due Diligence points are really the same as for any portfolio. Multi-asset investments still require you to understand how and where the money is invested. So if you can't see a breakdown – you should almost certainly avoid.

The fund should reflect your firm's investment strategy, in terms of diversification of asset classes and investment themes. As many of the funds are relatively new, you may need to concentrate on those that have a greater track record, including performance through difficult market conditions.

The freedom that a multi-asset proposition can exercise is a potent weapon in today's markets. The markets have benefitted greatly from artificial liquidity since the downturn, but as macro policy is shifting among the big economies, bouts of volatility are revealing areas of real vulnerability relating to correlation and liquidity risks. Multi-asset funds are starting to fill the gaps where straight forward allocation to fixed income would have once worked, but alas is no longer an easy option. Many fixed income instruments are now too expensive, illiquid and volatile. The wider remit and flexibility of the multi-asset manager is the key to navigating the topsy-turvy markets we are in. The many funds that are managed to a risk profile become ready-made solutions that align beautifully with a client's appetite for risk, as explored with their adviser.

Moreover the portfolio administration overhead is removed from the adviser.

We have been performing due diligence on funds from Canada Life, Fidelity, L&G IM, M&G, Prudential, Premier, Rathbones, Royal London, Vanguard Sanlam and Santander in recent months, and there are some truly outstanding ranges to choose from. Exclusively passive solutions are also available and over all, ongoing costs are easily comparable to traditional model portfolios. Clearly the compliance overhead is low, as the fund can be analysed as a single entity.

Below – I have built the following grid in Synaptic Product and Fund, providing a table that I can sort across a variety of metrics prior to selection. As with risk, qualitative research (or opinion!) should not take precedence over quant analysis. The FCA is concerned about the consistency of advice within groups of advisers, but we think that a focus on how research is performed should make it easier to establish parameters for consistency and best advice.

Chart 2 - Synaptic Product and Fund