The rising use of historic volatility as a basis for measuring risk, and ascribing that to models’ allocations, can present problems. Forward-looking assumptions are delivered by economic research businesses, and they are not cheap.
Where models do not invest in that data, outcomes may surprise, for example where a risk level ‘5’ ultimately performs like a ‘7’.
The FCA may follow thematic reviews into the use of CIPs and the onus is on the industry to ensure model solutions are robust and operate within a risk corridor that reflects the clients’ risk appetite.
Clients and their advisers need robust investment services that challenge the fund management industry status quo and that are focused on the client. Discretionary fund management can deliver that.
Paul Boston is sales director at Novia Financial
OUTSOURCING
It is estimated that only 20 per cent of platform assets are in models.
Where advisers have a discretionary solution in place, the onus has been on reducing costs by pressurising DFMs to blend passive solutions, and platforms to lower costs.
