Advisers urged to assess product fitness
Advisers need to take a forward looking approach to assessing whether a product's fees represent value for money for clients.
Lonsec Fiscal Group joint chief executive, Amanda Gillespie, said advisers needed to look beyond traditional metrics for assessing product fees, when considering if they fit with clients' goals.
Gillespie said the research house had adopted new ‘BIOmetrics' (better investment outcomes metrics) to help advisers assess products before making recommendations to their clients.
Under Lonsec's BIOmetrics, advisers will be able to consider product fees as a percentage for forecast returns, relative to peer group and asset class.
"There has never been a time when fees have come under greater scrutiny and this trend shows no signs of abating," she said.
"However, in current industry fee reporting, fees are reported on a lagged historical basis and are not expressed relative to return or to competing alternative options. By providing a forward looking view that compares like products, lower fees should no longer be used as a sole justification for product recommendations."
"Investors should seek to pay the lowest fees that will allow them to achieve their desired outcomes. For example, higher fees can be accompanied by higher potential return or better outcomes. As such, financial advisers, and their clients, should consider ‘value of money', not just the lowest fee, when providing financial product advice."
Gillespie added that Lonsec's BIOmetrics also assess products for environmental, social and governance (ESG) awareness.
"ESG awareness is no longer just a values based consideration when it comes to product recommendations," she said.
"ESG investing also aims to improve investment performance. There is growing evidence showing that incorporation of ESG factor into the investment process may offer investors potential performance advantages."
AUTHOR
Nicholas O'Donoghue
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