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Sharpen up research tools

Whether advisers are providing a whole of market or restricted service, access to independent research tools is critical to the delivery of genuinely customer-centred and professional advice

Although industry initiatives such as treating customers fairly and the retail distribution review are bringing about wholesale change to process and practice within the adviser distribution channel, some business requirements will remain consistent.

Indeed, the need to research the market for products and funds/investments suitable to the end client’s needs and to justify and record this product selection will arguably increase in the coming years.

Contrary to the belief that products are becoming more vanilla in their nature, product innovation is ensuring that IFAs and their clients will still be presented with a wide choice of product solutions. This is exemplified within the post-retirement market, where an IFA might feasibly need to consider the suitability of a conventional annuity, short-term annuity, invested annuity, income drawdown and thirdway products with capital or income guarantees for their client. Throw other possible post-retirement considerations such as investment bonds, equity release and long-term care into the mix and it is clear that the IFA will have their work cut out to research all the relevant products in the market.

Furthermore, for advisers wanting to continue to carry the independent title in future, the market has just got wider following the FSA’s new definition of retail investment products. Advisers will also need to consider and research investment trusts, structured products and exchange traded funds. Even if certain products are not included within the final client recommendation, the adviser will need to show, where relevant, that the products were considered and the reason why they have not been deemed suitable.

IFAs will therefore need to ensure that they are in a position to access product research across the markets in which they will operate after RDR implementation in December 2012. Should they wish to outsource this research process to a third-party tool or resource, they will need to ensure that they find a solution that can provide such product coverage and can keep abreast of product changes and developments on an ongoing basis. Although potentially selecting products from a narrower choice, “restricted” advisers will still have to carry out many of the same research and suitability processes.

Something that has also been made clear in recent business reviews carried out by the FSA, in particular, the the matic review on pension swit-ching, is that advisers need to be able to illustrate the process undertaken when considering the appropriateness of a transfer and the suitability of the new product into which the transfer payment will be made. Hence, there is a growing requirement for audit trails to be included within client files.

Advisers therefore need to ensure that such research, justification and suitability report capability is included as part of their best practice and compliance procedures.

It can certainly help to de-risk their business, in respect of avoiding fines from the regulator for poor recording of product recommendations, and become a differentiator in the adviser’s service proposition to clients.

Again, if they are seeking to outsource this business requirement to a third-party tool or resource, they will need to ensure that they are comfortable with the report writing function.

This may involve appraising the flexibility of the report content, ability to pre-populate client information and co-ordination of product suitability text with the product research and recommendation process.

Defaqto maintains the biggest whole of market product database in the UK, covering over 33,000 products from 2,000 product providers across all sectors of the financial services industry. In terms of investment products, this database covers all products and product features without exception. Through its web-based Engage system, Defaqto provides this data to investment advisers in a userfriendly format, providing a step-by-step process that they can work through with clients from fact-find to product recommendation.

A bolt-on to Engage is Defaqto’s suitability report writer which provides a streamlined, yet fully compliant, approach to producing suitability letters. This tool has been developed in line with regulatory requirements and is closely aligned with TCF principles. It is available from any computer with an internet connection and is constantly updated to reflect regulatory and legislative changes.

Once advisers have reached the recommendation stage in the advice process, the suitability report is generated using a systematic, step-bystep wizard that dynamically changes the report content based on the adviser’s answers and requirements.

It also contains freeflow text paragraphs every step of the way to allow advisers to further personalise their reports. Most importantly, a report can be generated in just 20 minutes. Throw other possible post-retirement considerations into the mix and it is clear that IFAs will have their work cut out to research all the relevant products


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