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Investment advisers are putting less and less brain work into the creation of portfolios for clients.

Advisers in recent years have sharply increased their use of balanced mutual funds, which mix stocks and bonds and in some cases can serve as diversified portfolios unto themselves. The more balanced funds are used by advisers, the less work there is in managing a client's holdings.

Balanced funds are a valid – even sensible – way to invest. But their increased popularity raises some questions about the relationship between advisers and their clients. Most importantly, there's the matter of how advisers are earning their fees if their role as investment specialists is diminishing.

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This is a timely question because securities regulators will in mid-2016 start requiring advisory firms to show clients in dollar terms how much they're paying for advice and other related charges. There's going to be an intense focus on the value advisers provide for the fees they receive, and balanced funds must be part of the conversation.

There are endless variations on the balanced-fund theme, some of them sticking to the Canadian market, others including global content and still others designed to pay monthly income. Some hold actual stocks and bonds, others are fund-of-fund products that hold other mutual funds. What they all have in common is a mission to combine stocks and bonds according to preset guidelines. There are balanced funds that emphasize either stocks or bonds, and that keep them both more or less 50-50.

Balanced funds accounted for just more than 50 per cent of the mutual fund assets tracked by the Investment Funds Institute of Canada in January, up from 39.8 per cent in 2011. Dan Richards, CEO of ClientInsights, a consultant to financial advisory firms, said one factor driving this trend is the simplicity and convenience that balanced funds bring to the job of portfolio building for investors.

"Everybody is jammed with the number of decisions they have to make," Mr. Richards said. "If we can simplify our lives and reduce the number of decisions that we have to make, then why not do that?"

Balanced funds are also big sellers with the financial planners in bank branches, he said. In fact, balanced funds from bank-run fund families dominate the list of the country's biggest balanced funds.

Mr. Richards also sees balanced funds as benefiting from new thinking about how to best serve investors. Going back a decade or more, these funds were seen as tools for unsophisticated advisers. Now, they're seen as helping to generate good outcomes for investors by providing automatic and consistent diversification.

In particular, balanced funds keep stocks and bonds in balance. They don't, as many investors prefer to do, allow the winning holdings in a fund to run higher and upset the overall portfolio blueprint. Mr. Richards said advisers may suggest a rebalancing – selling some winners and buying more losers – but clients often balk. "What a balanced fund does is solve the portfolio rebalancing issue for investors, and for advisers."

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There's a cost to the convenience and effectiveness of balanced funds, though. They can be more expensive to own than a portfolio of separate bond and equity funds. To understand this extra cost, let's look at the ongoing payments that mutual funds make to the investment advisers and firms that sell these products.

These trailing commissions, as they're known in the fund industry, are part of the fees that go into the management expense ratio, or MER, which is the definitive measure of the cost of owning a fund (returns are always shown after the MER has been deducted). In a bond fund's MER, 0.5 percentage points of the MER is the trailing commission; in an equity fund, it's 1 point. Combine the typical equity and bond fund in a 50-50 portfolio and the adviser gets a blended trailer of 0.75. In a balanced fund, the trailer is 1 point, just as it is in an equity fund.

Advisers can make more in fees by selling balanced funds, but they get more time to advise clients. How well they're using that time on the client's behalf is the question that hangs over the rise of the balanced fund in recent years.

What's clear is that advisers who use balanced funds can't simply justify their fees by being investment specialists. Some do try, though. They build portfolios of multiple balanced funds, which produces portfolio clutter and redundancy. There's also the question of how thoroughly monitored a client's overall blend of stocks and bonds is when he or she owns a bunch of balanced funds that have their own individual asset mixes.

Financial planning is the most beneficial way for advisers to demonstrate the value to clients of using balanced funds. It's a term that has no fixed meaning, but generally it refers to the process of considering a client's age, family circumstances, financial assets and debts and then developing a plan to achieve financial goals such as a comfortable retirement, tax reduction, inheritances and more. A well thought out investment portfolio is preceded by financial planning.

Mr. Richards said financial planning is increasingly being done by advisers, and it's actually working for clients. "There's indisputable data that having a written plan correlates with successful outcomes for clients," he said.

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Investor interest in advisory fees is going to peak in July, 2016, when new fee disclosure rules take effect. Seeing trailing commissions expressed in dollar terms rather than less concrete percentage format will jolt some investors. But the heart of the matter is value, not cost.

For the many investors whose advisers use balanced funds, the value question can be framed along these lines. Your adviser is using what could very well be a higher-cost solution for you, but also clearing time to advise you. What brain work are you getting in exchange for your fees?

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