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Advisers looking for ways to provide value for money to their clients should “embrace the institutional strategy of factor investing”, Hymans Robertson Investment Services has argued.
Hymans Robertson explained that factor investing is a well-known institutional strategy that’s used to add value while reducing costs.
It argued that, as part of their responsibilities under consumer duty, advisers not only have to provide value for money, but they have to evidence it.
As the industry approaches the first anniversary of consumer duty implementation, Hymans Robertson suggested it was the perfect time to test factor investing.
Hymans Robertson head of key accounts, Kate Rainbow, said: “To date, there has been relatively limited use of factor investing in the retail market but, this will likely grow considering the regulatory climate and also the needs of their client base.
“As the age profile of advisers’ clients increase and DB schemes become less common.
“Advisers will find that their clients will look to them even more to help them fulfil their retirement needs.
“So, the methods that are used in the institutional space to meet the needs of mature pension funds could be very useful.
“This means that the blueprint that the institutional investment managers have already laid will be particularly useful and advisers should actively explore methods that will help them meet the needs of their evolving client base.”
Additionally, Hymans Robertson pointed out that factor investing works through targeting assets with certain characteristics, such as value, minimum volatility, size, quality, momentum, and growth.
It added that diversification should “be at the core” of any factor investing strategy because no one factor is consistently the best, and performance varies year-on-year over shorter periods.
This is because some factors could underperform the broad equity market and other factors might perform well at different stages of the economic cycle.
All this makes a multi-factor approach one of the “most valuable strategies” for building a portfolio that delivers value while better managing market volatility and risk, the investment services argued.
Rainbow added: “Factor investing is an evidenced based approach that has the potential to reduce investment costs while enhancing returns.
“This is what IFAs increasingly need as regulators demand more insight. Consumer Duty requires advisers to evidence a number of things about the service they’re providing to clients.
“Value for money is one of those elements that they need to show they’re delivering consistently, along with ensuring that they’re managing risk effectively.
“This strategy can address both of those requirements and also serve to help advisers differentiate themselves.”
tom.dunstan@ft.com
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