“We’re not really focusing on volatility here, but more on the exposure to equities needed to provide the best probability of success during a long-term decumulation phase.
“Our research indicates that we have too many people in Balanced portfolios driven by volatility-derived risk-profiling, and we need to help them get comfortable with a higher level of equity content, because the empirical research shows us that this is the case.”
The M word
While both Mr Buttercase and Mr Hall see simplification as a route to better client outcomes, the former cites another catalyst for change that could lead other advisers to follow suit: Mifid II.
The Mifid requirement for advisers to report costs and charges, as well as how these affect investment returns, means advisers are now under greater pressure to justify both their overall fees and how they segment clients (see Box 1).
Similarly, a greater focus on the costs generated by each fund held in a portfolio means that having fewer can make the process cheaper, as well as simpler. This, for Verve, has served as an additional reason to concentrate on its simplification plans.
“We want to ensure clients understand what we are doing: I don’t want them reading 28 different fund reviews, particularly when markets are uncertain,” notes Mr Buttercase.
“All Mifid has done is accelerate the focus: sometimes best practices turn into regulation and some people are already doing it,” he adds.
As Mr Buttercase alludes to, the tumble capital markets took in 2018 is likely to paint an unflattering picture of how portfolios are working for clients. This could mean greater scrutiny of how advisers are working, as well as the costs and charges that appear in reports.
Too great a burden
Heather Hopkins, founder and managing director of research firm NextWealth, suggests the combination of Mifid and market volatility are adding to the strain already being felt by advisers on this front, and could prompt others to rethink the size of portfolios.
She says: “I would put it down mostly to regulation and markets. We hear a lot that the cost of compliance is going up. It is harder to keep up with all of the regulatory change and the cost of complying with rules keeps growing. This is putting pressure on profits, so firms look to simplify where possible. Reducing the number of funds in a portfolio can reduce the admin and back office costs for a portfolio.”
Will others look to downsize? Those considering such a move should remember that it will not necessarily be straightforward.
The advantages of smaller portfolios, from cost reduction to an easier life on the compliance front, are clear. Equally, clients may appreciate the merits of a simpler set-up. Mr Hall, for one, says he has been having “detailed conversations” with some of his wealthiest clients about the proposed switch to fewer funds, with a largely positive response. But he also believes the “messaging around the ‘why’” needs to be even clearer than he has made it so far.
