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A vital asset

Last week, I believe I may have seen the future of financial planning and it seems to work very well.

This week sees the release of the latest version of iTrak, a dedicated software package designed to enable advisers to identify a suitable asset allocation for clients and ensure that the underlying investments actually follow that asset allocation.

The software will also periodically review the client&#39s portfolio automatically and alert the adviser if individual holdings are diverging from their selected asset mix.

It is widely recognised that asset allocation is the primary determinant of total portfolio return, as identified by Brinson, Singer and Beebower in its landmark 1991 study, contributing over 90 per cent of the actual return, as compared with less than 2 per cent from market timing.

This software is designed to be used actively in front of the client to demonstrate the extent of investment that the adviser has made in applying technology and scientific processes to protect a client&#39s investments and enable them to prosper.

Frankly if someone is not impressed by this software, you probably do not want them as a client.

The need for advisers to move to a service-orientated customer-focused model, delivering real added value, is widely recognised across the industry. The trouble is that it is so easy to say, yet far more difficult to do. It has long been evident that software could play a huge role in this transition but the number of products that are seamlessly able to complement the adviser process are limited.

With iTrak, the adviser begins by loading basic client details and their existing investments on to the system.

For users of 1st Software, which recently acquired a 51 per cent stake in iTrak, these can be imported automatically from the main client database. I am aware of at least one other major IFA client management system provider building a similar facility.

When entering client data, the adviser can show not only the date of the original investment but also when the IFA took on the investment so that any losses incurred by the client before they started using the adviser can be reflected separately rather than impinging on the investment per- formance under the adviser&#39s management.

At this point, the adviser can use an “objective wizard” to define a specific objective for the client, including a timeframe for that investment and an attitude to risk appropriate to that objective.

When objectives have been identified, the investments can be allocated to those objectives and the holdings reviewed against model portfolios. This will, in turn, identify if the investments for a specific objective are underweight or overweight in each individual sector relative to the model portfolio.

Having identified where the balance needs to change, the adviser uses the system to research suitable replacement funds, taking into account a series of factors, inc- luding the match of the investment to a stated investment profile, allowing for the fact that not all fund managers necessarily buy assets that match with their IMA sector or public statements. In addition, risk, charges based on the Fitzrovia total expense ratio as a model (see www.fitzrovia. com/ter.htm) and performance are achieved using a fund transfer wizard.

Clearly, the client&#39s tax position may not make it favourable for all investments to be reallocated in a single review so the adviser defines the extent of restructuring in any given review.

Having completed the process, the system generates an easy-to-understand report identifying the objectives being addressed, the client&#39s agreed risk profile, the current asset allocation of existing investments and the proposed changes.

The asset allocations for agreed model portfolio as well as current and rebalanced portfolios are graphically illustrated and each element of the portfolio is reported on individually with a hold or sell recommendation, as are any new investments.

In the case of the latter, specific reasons are stated for the selection of any new funds. A declaration is included so the client can formally agree to the transactions in the report.

I can picture some compliance departments in rapture about elements of this package, not least as part of the report states when the next review should take place, once the client agrees to this as part of the recommendations. In the event that the client then fails to participate in such a review, the professional indemnity risk must be significantly reduced.

Once a client&#39s investments and stated objectives have been set up on the system, the software will automatically review all port- folios&#39 asset allocation and trigger every time the price feed is run for deviation from the agreed asset allocation. This will automatically alert advisers any portfolio or investment that is at variance with the agreed model. This means the adviser can provide the client with the peace of mind that the they are constantly monitoring the client&#39s portfolio for them and will proactively contact the client if changes should be necessary outside the normal review cycle. What price this peace of mind for adviser and client?

In my view, this software represents the ideal foundation for advisers to build their practices around periodic client reviews.

It could certainly lay waste to the self-serving publicity-hungry rants of the Treasury select committee on the question of what advisers do for their trail commission, although I believe this level of service warrants periodic fees from the client themselves.

In addition, iTrak demonstrates the sort of functionality that would make it worthwhile for a far wider group of advisers to start adopting wrap.

The software is available for a single-user cost of £125 plus VAT. More information on pricing can be found at www.itrak.co.uk.

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