The Financial Technology Research Centre’s Adviser Forum has set up a discussion group comprising advisers, Aifa, the IMA and platforms with the aim of creating good practice notes for advisers using risk profiling and asset allocation tools.
Adviser Forum chairman Ian McKenna says the FSA’s paper DP 07/02 on platforms and fund supermarkets raised concerns that some firms or advisers “may adopt platforms, and use portfolio planning tools, without understanding how they work or have the expertise to use them. There is potential for consumer detriment if systems are misused.”
McKenna says good practice notes are needed to help advisers. These could iden-tify the steps to be taken when selecting the various tools, by defining a common framework so that providers can discuss or describe tools consistently and by proposing the procedures suppliers should put in place to notify advisers if there any changes to the assumptions employed by the tools.
He flags the dangers of relying on tools as an off-the-shelf solution when they can be tweaked to meet a particular provider’s or adviser’s requirements.
McKenna says: “With tools of this type increasingly playing a pivotal role in the advice process, it is essential that advisers should be able to demonstrate exactly why they have selected a given tool and that they understand the economic assumptions that underpin the tool as well as the content of the portfolios that sit beneath it.”
Bankhall chief executive Peter Mann says: “When you get down to the investment decision if they are riskbased on compliance and a fact-find, there is some value in placing it through a tool to find out which of the model portfolios is most appropriate.”