Portfolio change delays from compliance exponentially reduce gains
Investors could lose up to 60% of gains if portfolio changes are delayed by six weeks, according to HUB24 modelling.
HUB24’s latest report, in conjunction with Milliman, said increased compliance and the manual nature of traditional portfolio management processes made it challenging for financial advisers to deliver timely investment decisions.
It said advisers could take up to six weeks to implement investment decisions due to challenges in preparing advice documentation, discussing changes with clients, obtaining client consents and lodging paperwork.
The report modelled a scenario of a client that held $500,000 in a diversified growth managed portfolio on 25 March, 2020, during the COVID-19 market sell off, for six months.
The modelling looked at the difference in returns when 5.5% of the client’s funds were moved to a defensive portfolio over a delay of one, two, four, six weeks, and no delay.
It found the portfolio was $4,460 better off when portfolio manager decisions were implemented immediately compared to if there was a delay in implementation of one week.
When it came to a six week delay the gains were reduced by 60.1%.
Cost of delaying asset allocation changes over certain periods
Source: HUB24
Milliman principal, Victor Huang, said: “Delaying asset changes by just a couple of weeks can really have a material impact on your client’s outcomes and quite possibly negate a large part of what the portfolio managers are trying to achieve when making these decisions”.
Recommended for you
The FSCP has announced its latest verdict, suspending an adviser’s registration for failing to comply with his obligations when providing advice to three clients.
Having sold Madison to Infocus earlier this year, Clime has now set up a new financial advice licensee with eight advisers.
With licensees such as Insignia looking to AI for advice efficiencies, they are being urged to write clear AI policies as soon as possible to prevent a “Wild West” of providers being used by their practices.
Iress has revealed the number of clients per adviser that top advice firms serve, as well as how many client meetings they conduct each week.
