“The big change has been in allowing advisers to do that assessment and then being able to dial up or dial down the solution based not just on attitude, but also the suitability and capacity for risk of the individual. It is not just about blindly following a black box."
He adds the industry now also has things such as cash-flow modelling, which Mr Henning describes as "the ultimate reality check". He explains: "It looks at how likely it is that the client will achieve the cash flow required and can be a real wake-up call on the level of risk someone is able to take on.”
Evolution of the market
Mr Harman adds: “The move within the industry to more closely align multi-asset products to the investment objective of the client has been an important development. Rather than relying on long-term averages, investment houses are building products that are not just trying to outperform the asset class indices, but more closely map the end-investors’ needs.
“In addition, the risk-rating agencies have evolved. They are now putting in more qualitative analysis too. They are not just number crunching; there is a deeper understanding of what funds are offering.”
Meanwhile, Rob Thorpe, head of distribution, intermediary, UK at BMO Global Asset Management, highlights the fact advisers can have a greater sense of confidence in multi-asset solutions as time passes and the market evolves.
“Advisers are able to use risk-profiling tools and make clear recommendations based on the results,” he says. “Our funds, for example, have proven they can deliver upon expectations even over a turbulent time in terms of market conditions.
There are always going to be short periods when the funds will be outside of the parameters set for them, particularly when there are black swan events or sharp corrections but, if the adviser chooses a quality fund, they benefit from the long-term experience of the managers to be able to deliver over time and not have knee-jerk reactions to short-term market movements.
“As funds within the sector establish longer term performance figures, it will become easier still for advisers to choose the optimum product to deliver their clients’ needs.”
Overall, the level of commitment the industry is demonstrating towards multi-asset solutions, namely in the creation of a dedicated sector and a plethora of fund launches, shows that this is a trend that is set to continue.
However, while risk-profiling has evolved, there will undoubtedly be more work done on finessing the process, combining both art and science in ensuring that the tools and solutions deliver upon expectations.
