Smoothed Investment Funds – friend or foe?

by | May 30, 2022

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A recent IFA Magazine survey, conducted in partnership with Pru, uncovered readers’ views on the use of smoothed investment funds. It reveals that respondents see value in recommending them to clients in both accumulation and decumulation phases of the financial planning process.

Given the considerable turbulence and volatility in today’s global market conditions, we were interested to find out advisers’ views on whether using a smoothed investment for their more risk-averse clients’ portfolios was becoming a more popular investment strategy option or not. To this end, IFA Magazine recently partnered with Pru to ask our readers to share their views on the use of smoothed investments and on Prudential’s PruFund range of smoothed investment funds in particular. So, what did we discover?

Testing positive

We know that in today’s Covid times, testing positive isn’t always de rigueur. However, when it comes to our readers’ opinions of smoothed investments, fig 1 highlights how almost three quarters (74.5%) of our survey respondents tested positive, saying that they had either a positive or very positive view of them. It certainly shows a strong leaning towards the benefits of recommending this type of investment to clients in today’s challenging market conditions.

 

Of course, these investments are not for everyone, but there were certain areas and financial planning scenarios where respondents felt they offer particular benefits.

One of these areas was whether our audience saw value in using smoothed investments within a centralised retirement proposition (CRP). Again, we can report a compelling response, with78.8% saying yes, they do see value here.

Fig 1 

 

In particular, many respondents cited the use of such investments within income drawdown situations as being valuable. With clients in income drawdown situations, our survey asked how much readers found that the use of smoothed funds can support effective client outcomes. We found that the majority of respondents (57.1%) saw them as a positive in this respect, with only 8.6% saying that when it comes to such benefits, they saw “none at all”.

A broad range of client scenarios was highlighted by respondents. Of note, was that many reported that they would consider recommending the PruFund range of funds as a suitable investment solution in both accumulation and decumulation phases. Drilling down into the detail, respondents highlighted the benefits of recommending smoothed investment funds for older, more cautious investors, clients with lower tolerance levels towards market volatility and capacity for loss and those either nearing or in retirement. Finally, smoothed funds were seen as appropriate when used either as stand-alone investments or as part of a balanced investment portfolio.

 

Understanding and communication

Many advisers and paraplanners have held the view that to invest in a particular way or make such recommendations to clients, it’s important for them to be able to understand the detail of how the investment strategy and product actually work – and also to be able to communicate it to clients. It seems that whilst some respondents had concerns about the transparency of smoothed investments, the majority view was that such investments are either ‘very easy’ or ‘easy’ to understand and to communicate to clients. Almost two thirds of respondents (63.2%) said this was the case in their opinion as is shown in fig 2.

Fig 2 

 

Understand and communication is there a performance drag?

We asked our survey audience for their views on how the past performance of PruFunds compare to that of other multi-asset funds which they may use. Interestingly, more than 30% (30.2%) said it was ‘better’ with 50% reporting it to be ‘about the same’. This is very positive and ties in to the long term view where the benefits of smoothing out the peaks and troughs of market volatility can be seen in practical terms.

What about value for money?

We were keen to find out whether advisers felt that the PruFund range of funds offers value for money or not. With 56.6% of respondents saying ‘yes’ that it did offer value for money, these were in the majority compared to 19.8% who felt it was ‘worse’.

What more would respondents like to see?

When we asked respondents for their recommendations on what more they’d like to see from the PruFund range, a number of suggestions were forthcoming although platform availability and lower cost were the most frequently occurring responses.

 

In summary, we’ll leave you with the words of one respondent who expressed their views as follows: “I have experienced working with these funds for over 30 years, I know that they work.”

Survey details

The survey was conducted by IFA Magazine online between 25/03 and 29/03. There were 231 responses.


Click here for more information about the PruFund range of funds

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