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Research and deliver

The number of best advice systems has increased considerably over recent years.

By referring to an independent system, a whole of market adviser can demonstrate to their clients that they have undertaken some extensive research to establish which pension arrangement would be appropriate to their circumstances, once they have confirmed that a certain type of transfer arrangement, such as a personal pension transfer, is suitable.

Several software providers offer these systems and they contain a multitude of information from product features to estimated projections based on the charges of the plans.

An adviser would be able to obtain numerous illustrations from providers themselves but, by being able to see the results of a given client scenario instantaneously, a huge amount of time is saved.

But are these systems always reliable? The answer is, in the main, yes, but care is needed over how they are used.

Many advisers I know use these systems to ascertain which contract, or contracts, initially represent best value for money , usually by means of a projection to the client’s intended retirement date. Given the different timescales and investment amounts, the most attractive offices will, of course, vary all the time.

But it does appear that what is bought is not always reflected in the initial research.

It is easy when using these systems to use a default sector fund choice. This will often be the balanced managed sector and the provider’s own managed fund but this may not be a sound practice for all or some of the following reasons:

  • The asset allocation of the sector (for example, the balanced managed fund sector can invest up to 85 per cent in equities) is not suitable for the client.
  • The performance track record of the fund in question may be one that the IFA would consider to be not good enough.
  • The stock selection of the funds may not be appropriate.
  • The adviser may want to diversify over a range of funds and investment companies, not just those funds from whoever offers a cheap wrapper.

Using the default fund choice could be likened to comparing the price of small hatchbacks and then buying a family saloon from the same manufacturer – your research is not necessarily based on sound principles.

This trap has several potential consequences:1: The adviser is recommending a wrapper which does not represent good value based upon his eventual recommendation.2: The client is restricted to a limited range of funds when a more comprehensive selection would have been more appropriate.3: The compliance audit trail is considered broken as the initial research does not bear a relation to the client’s requirements or eventual adviser recommendation.

However, with just a little work, these traps can be avoided. Some comparison systems allow the projections to be made across a combination of different funds and sectors rather than just a default fund.

Let us take one particular system as an example, O&M’s pension profiler system. This allows you to set up an investment portfolio based on specific funds (both internal and external) that providers offer. This allows the adviser or paraplanner to create a portfolio based on funds which they might reasonably recommend – and then do a far more accurate projection based on this real-life portfolio.

This can initially be more time-consuming than just using a default fund but once the portfolio is set up, it can be saved for use with further projections.

Some advisers with multiple outlets could take this approach one stage further and set up their best advice systems with portfolios dependent upon a client’s attitude to risk.

This may, for example, involve having five risk ratings for portfolios, ranging from one to five which are used as a standard by the company.

In this way, the adviser can demonstrate consistency of approach to asset allocation for advisers operating in different parts of the country and from different offices.

In summary, comparison systems have enabled independent advisers to demonstrate product research far more thoroughly than perhaps was the case 10 or 15 years ago.

It does, however, remain the responsibility of the user to ensure that these systems are used to their best advantage. By using these systems to their full capacity, a far more accurate assessment of suitable products can be made. Does that sound like treating customers fairly?

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  1. I still refer to this article even now. This bloke is a visionary.

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