We’ve come to accept that we’re living in a period of sustained market volatility and to rethink our investment landscape as one that will be lower for longer, so is it also time to rethink how we as an industry think about advice?
In recent years, many advisers have been adopting the practice of real returns, or objectives-based investing to gain better control over portfolios and deliver returns for clients.
This approach is centred on improving clients’ investment outcomes by focusing on delivering to their objectives as opposed to delivering returns relative to an asset class-based benchmark.
Also known as a goals-based approach, it aims to help clients meet their personal and lifestyle goals by placing these at the centre of the advice process and pairing them with investment products and strategies that strive to do the same.
Now many advisers would argue that they do take client goals into account and put the investor first, which they should, however a real returns approach differs both in how it measures success and approaches risk.
As an industry, we’ve traditionally measured success by how much a particular strategy has outperformed the benchmark by. However, real returns based investing instead judges success by how well an investor’s portfolio is doing in comparison to their stated goal or goals, whether this be for a holiday, a new car, or to fund retirement.
Focusing on what is most important to an investor and reporting on how their portfolio is on track to meet their specific needs, serves the dual purpose of also keeping investors on track over the long run, and especially during times of market volatility when they may be more likely to act irrationally.
Real returns investing also holds the belief that asset diversification is not always the same as risk diversification, which is reflected in the construction of client portfolios, which are built in a flexible and cost-effective manner to create portfolios where risks are balanced.
This rethink of advice, also requires a change in how advisers communicate with clients to keep up to date with their evolving goals and priorities and ensure they’re informed of how their investments are tracking in relation to this.
We know that client engagement is crucial for the success of financial advice, which is why we’ve partnered with the Association of Real Return Investment Advisers (ARRIA) to host an industry roundtable for advisers.
To register your interest in attending the roundtable on December 14th please contact ARRIA for more information.
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