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Advisers are warned to reassess wrap portfolios

Thomas and Thomas managing director Darren Lloyd Thomas is warning other advisers against setting up clients on wraps and then failing to rebalance portfolios on a regular basis.

He says he has had complaints where a client’s previous adviser set up their portfolio on a wrap with many funds but after the initial commission was paid, the adviser failed to ensure the investments remained appropriate. Lloyd Thomas says: “If the adviser is not getting hold of the portfolio and rebalancing it regularly, it is likely to start to fail. An asset allocation model is only good for about three to 12 months. After this, you encounter portfolio drift, where the client’s portfolio starts to look nothing like the original recommendation and may become more risky by nature.”

He says rebalancing was flagged up in the FSA’s recent pension switching review, where the regulator noted that advisers in many cases are not getting back to their clients to rebalance. He says: “This is bad when you consider the client may well have been taken from a regularly rebalanced fund and then put into a huge basket of funds which are just left to drift.”

Lloyd Thomas says multiple switching is also a key area where platforms should be helping IFAs. He says: “It is a nightmare if the IFA has requested 100 switches and then three of them are not carried out. Checking all the client valuations will ultimately either push client servicing costs up or threaten the IFA’s competence.”

Concept Financial Planning managing director Paul Richardson says: “There are lot of automated systems that will rebalance but you should be sitting down with clients anyway, reassessing their attitude to risk and rebalancing. The biggest debate is whether it should be done quarterly, half-yearly or yearly.”


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