Blue Chip Journal - June 2019 edition

COVER PROFILE
Why outcome-based investing
is easier than you think
How should investors process the
emotions that they feel during
increased market uncertainty?
They need to understand how their
investments behave and know what is
likely to happen before it happens. Equity
markets are volatile and will lose capital
from time to time. We have to inform
clients that this will happen, making
sure they know they can afford to lose
capital in the short term, reassuring them
they have enough time for markets to
recover, and enforcing the message that
the points of greatest risk often coincide
with the best opportunities. This will give
clients the confidence to remain invested
even when the unexpected happens.
Try to understand what drives
uncertainty in the markets, as it is often a
short-term phenomenon. Do some of your
own research by understanding that it is
better to remain calm and invested during
uncertain times, and don’t look at your
investment values on a day-to-day basis.
Research showing that investor returns
are lower than investment returns has
been done frequently. What is likely
to trigger an improvement now?
Greater levels of knowledge and
professionalism in the financial adviser
space, together with better tools should
align expectations more realistically.
Unfortunately, this is not a silver bullet,
and there will be many instances of clients
being disappointed. Ultimately, clients
need to exercise their choices and should
choose their financial advisers carefully.
Switches and cash flows often affect
investor returns. Keep switches to a
minimum and only switch if absolutely
necessary or if the investment strategy
changes.
Most people don’t know what they
want to do next year. How should
they go about understanding
their life-long goals?
I think this is as a result of just not spending
the time and effort thinking about the
future and constructing stories of where
and what they want to be. This is an
opportunity for financial advisers to start
conversations with their clients where they
look at their dreams, needs and fears, and
then systematically make this practical and
achievable.
Often we don’t understand our lifelong
goals. What we do know is we want
to retire comfortably and perhaps have
enough money to travel and leave a
legacy. This should already be enough
to start a conversation and change the
mindset of the investor to a longerterm
view as opposed to short-term
focus on risk.
We manage all funds with the outcome
as the focus. It’s not just a single outcome
of inflation plus 5%, for example. It’s also
about the experience the client has over
time. It’s a fantastic story to tell and a
great “aha” moment when the client
finally gets it and fully understands the
"what" and the "how". Once we reach that
point, it is difficult to lose clients, and the
whole conversation and type of language
we use changes when we give feedback.
Suddenly, clients understand that we
don’t focus on our competitors but on
the outcome and the experience. How
we perform relative to our competitors
is now a consequence, not the focus. We
stand for keeping clients invested, using
diversification and, in that
process, making the journey
comfortable.
How does outcomebased
investing align
with active or passive
investment management?
We don’t believe it is an “or”
but rather an “and”. Active
or passive investing are
tools in a toolkit that can
address different needs
and, in some instances,
complement each other. Our
funds generally use a blend
of these approaches where it
makes sense: passive for cost
control, risk management
and to get direct exposure
to market movements, whereas active
management opens up alternative
sources of return, the potential to add
outperformance relative to a market
benchmark.
The decision between active or
passive investing or a combination
is always approached from what the
solution is targeting as a whole. Cost
control is a driving factor, but so is
risk and reward. Active strategies are
used only where there is a clear value
to be added from an outperformance
perspective over time after costs have
been deducted. The combination of
active, passive and alternative passive
strategies, for example smart beta, helps
create robust outcomes over time.
How can you be sure that financial
advisers not only understand their
clients’ goals but also have the
expertise to choose the appropriate
solution that will maximise the
probability of achieving these goals?
We try to help financial advisers through
education and tools, support and
contact sessions, even by growing our
own tied-adviser force. However, this is
not a silver bullet and clients need to
be selective about which company and
financial adviser they choose to partner
with.
Suddenly, clients
understand that
we focus on the
outcome and the
experience – how
we do relative to
our competitors is
now a consequence,
not the focus
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