NEW YORK (MainStreet) Selecting investments to recommend to clients is a primary function of financial advisors. What would be the number one aspect to consider? Performance? Ranking? Brand? In fact, none of these. According to a survey of more than 200 registered investment advisors (RIAs) conducted by Aberdeen Asset Management, the primary factor leading an advisor to recommend one fund over another is "clarity regarding the portfolio manager's investment philosophy and strategy."
Apparently, understanding a mutual fund's investment plan is a high priority for advisors because of the increasing complexity of investment products. More than two-thirds (67%) of advisors surveyed admit that investment products have become increasingly difficult for clients to understand. But most financial consultants (67%) also say that these new, more complex and sophisticated products generally offer valuable benefits that can help clients achieve their investment objectives.
"Simple, open and honest communication from the fund manager is of utmost importance to advisors when determining which funds to invest in on behalf of clients," said Mickey Janvier, with Aberdeen Asset Management. "Fund managers that can clearly and concisely articulate their investment philosophy and strategy are more likely to garner interest from advisors and attract assets. While this seems simple in theory, many fund managers continue to undervalue the importance of clear and concise communication with advisors about how portfolios are invested. These managers will have a difficult time remaining relevant in an environment where transparency is king."
Fully 59% of investment advisors said that clarity regarding the fund manager's investment philosophy and strategy was the single most important factor considered when analyzing mutual funds to recommend to clients. Additional, though less critical attributes were: historical returns (19%), fund rankings (10%), fund manager tenure (8%) and brand name (3%).
According to the survey, most advisors conduct their investment product research online (60%). Other ways advisors stay up to date on money management products and solutions are through industry trade publications (20%), wholesalers (15%) and conferences (5%).
--Written by Hal M. Bundrick