It seems fairly obvious to state that investors are setting their money aside in order to achieve outcomes but the idea of outcomes-based investing goes beyond that simple premise.
Following the introduction of the Retail Distribution Review and reforms to pensions, there are now other long-term investment goals for investors and advisers to consider.
George Osborne’s shake-up of the pensions market in this year’s Budget is one of the factors behind the shift to an outcomes-based investing model. With investors no longer required to buy an annuity at retirement, the search for income will be on.
So it is a time of change for both investors and the adviser market, which will require both sides to adapt.
Nick Samouilhan, fund manager, multi-asset at Aviva Investors, acknowledges: “There’s been a greater focus by regulators on how IFAs are advising on money and one of the focuses has been on how they decide what kind of profile we have, whether we are happy to take lots of risk or we’re not.
“[Another] part of the change to outcome-based investing has been a focus on how the adviser constructs the portfolio to meet our needs.”
Where before the adviser’s role was not only to understand the needs of a client and then to construct a portfolio of equities and bonds to achieve those aims, investment firms are providing products specifically with outcomes-based investing in mind.
Mike Webb, chief executive of Rathbones Unit Trust Management, harks back 20 years to when investing was about “maximising the returns that were available”.
He adds: “It is important to look at how funds perform but not necessarily simply slavishly following where they appear in the competitive rankings.”
This is prompting the launch of new, more sophisticated products, such as risk-targeted funds. Meanwhile, annuity providers are responding to the government’s decision to scrap the need for annuities at retirement age. All of this adds up to an exciting time for the industry, but one where advisers and investors will have to be prepared to keep up with the changes.
Mr Webb notes: “There’s a lot of frantic design going on trying to come up with pension funds that provide a necessary level of income but also recognise the longevity of retirement given the demographic changes.”
Ellie Duncan is deputy features editor at Investment Adviser
