Morningstar panellists agree SAA not dead



Tailored advice faces a number of challenges, but a compromise can be found within strategic advice models, according to panellists at Morningstar's annual Investment Conference.
Aman Ramrahka from the CFS Institute of Advice at Colonial First State said strategic asset allocation is an "advice model with static asset allocation that generally doesn't change and a compliance regime that influences that quite rigorously".
Grant Kennaway, head of fund research Asia-Pacific at Morningstar, said tailored advice based on client's individual objectives is an asset allocation model that would allow advisers to shine, but doesn't currently fit into regulatory framework and the way licensees run their advice practices.
"We've lived in a platform driven world for the last ten years, so lots of solutions have had to be platform friendly," he said.
But the trend toward direct investing will see opportunities for further product development and portfolio construction, and drive products that do not rely on platforms such as annuities, Kennaway said.
Tim Murphy, co-head of fund research for Morningstar, said the industry looked at the issue of strategic asset allocation from polar ends of the spectrum, but he believed the answer lay somewhere in between.
Murphy said not many fund managers had the skill to make those tactical decisions across all asset classes, and advisers needed to be confident that the high turnover and higher fees associated with that kind of investing can be compensated for.
"You're narrowing yourself down to a very small universe, but that's not to say it can't be done," he said.
Chris Douglas, co-head of fund research for Morningstar, said tactical decisions are more easily made in broader asset classes where opportunities are ample.
Strategic asset allocation is not dead, said Kennaway, but tailored advice and product innovation was a discussion the industry needed to have.
In the interim, Kennaway said the strategic asset allocation framework allowed for products with lighter mandates, more downside protection, and a total return focus.
He said SAA still had a lot to give, but product innovation in the marketplace would give choice to advisers.
"That engagement discussion and getting actual solutions that are practical for clients is where product development should come from," he said.
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