Advisers hungry for TAA amid GFC

Strategy provides little value-add: Zenith

By Victoria Papandrea
Mon 29 Jun 2009

The global financial crisis triggers a massive rise in the demand for tactical asset allocation services from financial advisers.

With many investors experiencing significant negative returns over the past 18 months, there has been a substantial increase in the demand for tactical asset allocation (TAA) services from financial advisers and their clients, according to Zenith Investment Partners.

While this is a common reaction to any bear market, very few practitioners consistently add value from TAA over the longer term because of the unpredictable nature of investment markets, Zenith national research provider David Wright said.

"Most practitioners of TAA actually detract value by making asset allocation adjustments away from strategic asset allocation weights over the longer term," he said.
 
Some financial advisers believe they add value from TAA in the management of client portfolios, however the reality is most don't actually know, Wright said.
 
"The reason for this is that many advisers don't actually look back and measure the value their decisions have made against strategic asset allocation benchmarks. As the old adage goes, 'you can't assess what you don't measure,'" he said. 
 
"This issue is magnified by the fact that the clients generally, with all due respect, don't know any better and so think the TAA advice being provided is part of what financial advisers do and is adding value to their portfolio."
 
Most financial planning practices with a medium to large number of clients are not adequately resourced from an administration perspective to pursue TAA within clients' portfolios, Wright said.
 
"Unless administration is highly efficient and transaction processing times are instantaneous, there is significant risk that client moneys will be out of the market on days where the market provides a strong return," he said.

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