View more on these topics

Open up the toolbox

You can always tell when a holiday season is approaching. Those nice folk down at Canary Wharf come up with a nice big consultation paper for all of us to read. Who wants to be sitting on the beach reading the latest offering from John Grisham or Matt Beaumont when you can thrill to the joys of CP09/18?

This summer’s blockbuster from the FSA is packed full of challenges as they plan how to take some highly laudable aspirations and put them in to practice. Over the last few weeks, I have been talking to industry practitioners who are concerned that the practical application of many of the lofty ideas in the original RDR documents could actually have the reverse of the effect they were designed to achieve.

One of a number of areas that appear to be causing concern when you get to the detail is the proposal that advisers might be precluded from using portfolio planning or customer relationship management software supplied by providers under the inducement rules.

Putting aside the issue of client management software, which I will return to later, in recent years, portfolio planning systems have played a valuable role in educating advisers about how to put in place better processes to ensure clients have portfolios that are suitably diverse and correspond to the client’s attitude to risk.

This is not to say the present situation is perfect. Anyone who has compared the output from different organisations using similar tools will recognise there are instances where some of the model portfolios produced come up with asset allocations that are rather conveniently aligned to the offerings of the sponsoring organisation. Our research suggests that some life offices are particularly guilty of letting their actuaries play with the default portfolios to their commercial advantage.

The way to address this is to require the portfolios in such systems to be independently created and that the details of the underlying models are truly transparent. Equally, increasing numbers of large advice firms are developing their own model portfolios and we need to see processes established where these can be easily adopted by the underlying system.

We are in dialogue with a number of organisations on how this can be made a standard way of working.

Tools of this nature cost many millions of pounds to develop. Currently, the majority of this cost is absorbed by the provider community. By precluding providers from offering such services to advisers, the FSA is ensuring this cost will ultimately end up being passed directly to consumers as, operating within the constraints of adviser-charging, advice firms will be ill equipped to absorb such costs themselves.

The current system has resulted in major financial institutions investing in systems that would probably never have come to market if the seed funding needed to originate from small adviser firms.

There is still plenty of room for further innovation in these areas and introducing regulatory constraint would almost certainly result in a reduction in consumer choice and the range of tools and services available to help savers form realistic expectations as to the long-term value of their investments.

In the very near future, we will see further enhancements delivered in this area to help advisers and their clients.

If the current draft rules were already in place, these developments would almost certainly never have been delivered.

There is a significant body of evidence both abroad and increasingly in the UK that the availability of such tools to consumers encourages them to invest more savings and achieve better long-term financial outcomes. Surely the FSA would not want to inhibit the widest possible availability of services that can help consumers reach better outcomes?

Rather than prohibit the supply of these systems, I believe the FSA would achieve more for consumers by recognising the weaknesses in the way these systems are currently supplied and addressing those issues rather than a blanket prohibition which would reduce access to services that can genuinely help consumers.

I believe that such tools are most effective by giving both the adviser and, where they want to use them, the consumer, access to the services.

When it comes to the restriction on the supply of client management systems, I do feel this will be a far more difficult position to defend. Fortunately, the vast majority of advisers I know see controlling their own client management system as a core part of their business and maintaining their independence so I do not actually see this as anything like the same level of problem.

Indeed, it might have a positive benefit for some in such restrictions. For example, I believe Macquarie has made a serious tactical error bundling its Coin software with its new wrap offering. If the FSA is going to prohibit supplying such software, Macquarie could then expend the resources currently dedicated to this activity more productively.

Overall, I believe we need to see a change in attitude from IFAs and the regulator in the area of financial planning tools and portfolio modelling software.

Advisers should recognise that giving access to such services is good for their clients and is not threatening to their advice relationship and the FSA should recognise that access to such tools helps consumers reach better decisions. Far from discouraging them, they should be actively encouraging their delivery to advisers and consumers.


Barclays fund switch raised risk for widow

Barclays advised an elderly widow concerned about a fall in her fixed-interest bond to transfer her savings into a fund which could hold up to 40 per cent in equities despite her insisting she wanted capital security.

Rayner Spencer Mills: Why we rate the Artemis US Select Fund

Ken Rayner and Graham O¹Neill from RSM explain why they rate the fund, its investment process and how it can be used in a portfolio The Artemis US Select Fund became a RSM ‘rated’ fund earlier this year. In this video, Ken Rayner and Graham O’Neill explain the fund’s investment approach, why they rate it, […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm