How much detail do you need to know about the investment products you recommend? Do the prospectus of a fund and an updated provider fact sheet provide sufficient insight or do you need to dissect it further? As products become more and more specialized a more in-depth analysis of the fund and how it’s invested can help ensure it’s the right fit for the client or the portfolio in question.
I think it is suprising that we live in the information age yet basic information for some investment products is either difficult to come by or even withheld altogether from investors and their advisers. Does the transparency of a fund play into your decision to recommend it to a client? Many advisers have demanded greater transparency from asset managers, platforms, regulators and insurance companies, but unfortunately it seems some people evolve slower than others.
I have the exact same conversation at least once a month with advisers who are trying to analyze a client’s portfolio but are unable to do so because the asset allocation data Morningstar has, for some products, is incomplete. The first reaction is usually “How could Morningstar not have data for these funds?” The answer, more times than not, is because the fund or insurance company is reluctant to provide the detailed portfolio breakdown. Without this data, a complete analysis of the client’s portfolio cannot be done and the adviser’s ability to accurately advise on the client’s assets is limited to the published top ten holdings. Furthermore, an analysis taken from several different sources will include incomparable classifications of sectors and geographic exposures, creating an apples and oranges scenario. And in other cases, when the holdings data of a product is not available, some providers will use the sector average as a proxy, which is can be inaccurate as well as misleading.
So why would the full holdings (asset allocation) of an investment product be withheld from those in need of such information? Some do not feel the need to report such detailed information. With the vast majority of asset managers reporting their full holdings though, this just displays a limited number resistant to such positive change. And this is becoming more and more unacceptable to a growing community of advisers and investors that value independent, in-depth analysis.
Unfortunately, it can also be a commercial decision to not disclose full holdings data. Preferred relationships may stand in the way of working with other data or research vendors, which is a shame because the end investor couldn’t care less about such arrangements.
I would argue it is ultimately in the best interest of the product provider to provide such data because so many other product providers already do. If you’re comparing two funds and you have a full breakdown of the assets of one fund and nothing for the other, how could you possibly make an informed decision and choose the one with no data? And that’s not to mention the number of ETFs that publish portfolio holdings on a daily basis. If I’m an investor, or perhaps more importantly an adviser, transparency and disclosure of information are important factors when choosing where to put my (clients’) money – just ask Bernie Madoff’s investors.