Last week a member of the news team at Money Marketing asked me if I thought that Selestia was too late coming into the market to gain significant market share. My reaction was that rather than being late to come to an old market – fund supermarkets – it is early into the new market, – product supermarkets.
I have long felt that fund supermarkets are only the first stage in a radical transformation in the personal investment market. I would go so far as to say that any traditional life and pension player that does not develop a full-blown supermarket capacity, with a wide range of external fund links in the hundreds rather than a dozen or so will sooner or later find itself unable to market effectively under its own brand.
Providers which are limited to their own funds will increasingly be seen as inferior to those offering their own funds with a range of others.
There has been considerable comment about the strengths or otherwise of the range of fund management partners that Selestia is offering.
The list is not as full of household names as some other services. But Selestia argues that its approach is built on providing a broad enough range of fund managers and funds to allow advisers to provide clients with a suitably diverse level of asset allocation while also giving the adviser the access to the necessary tools to help them identify a suitable mix of funds that will provide the appropriate balance of underlying assets.
Selestia gave me an exclusive chance to try these tools. At the heart of the system is a service to help the IFA model possible investment portfolios for the client.
Having identified which product wrapper to recommend, the options being a new Isa, a Pep or Isa transfer or a collective investment account, the client's risk profile is identified using a brief or more detailed questionnaire.
The latter will examine issues such as the client's provision for short-term emergency funds, future earning expectations and the percentage of their investment portfolio which is being considered.
The service takes into account the level of loan commitments, length of time the investments are to be held for, the extent of aversion to risk or otherwise, maximum acceptable levels of losses over a one-year period and other issues.
From the responses, the service will create a risk assessment level for the investor. They then identify acceptable sector allocations beginning with a traditional institutional asset allocation model. You can set minimum and maximum levels of investment for different sectors.
The service uses economic assumptions developed and maintained by Watson Wyatt. If the selection is inconsistent with the identified risk level for the client, the service will flag this and invite you to review the allocations.
The software will show the probability of portfolios achieving returns between varying levels over the selected time period. It can also be asked to maximise the probability of achieving the desired return.
Having identified the sector allocation, the service then takes users to lists of funds that can be included.
This can be refined further by introducing a range of selection criteria that can be used to her refine the funds that are to be used. These can include Standard & Poor's ratings, acceptable volatility over a range of periods, fund size, research rating and other measures.
Having identified the funds that meet the specified cri-teria, the service lists those that have been included to allow users to allocate the percentage of the investment that is to be put in each. Funds that have been excluded in the process are also listed.
The service will generate a detailed investment report listing all the factors taken into account during the process. This is stored permanently by Selestia for those cases that proceed to the new business level and can be exported by the adviser in Word format and used as the basis for the reasons-why letter or for other compliance purposes.
The service can be used repeatedly to create any number of possible portfolios for the client's consideration.
Having decided which portfolio they want, the adviser can steer the client through an online new business process. The first premium can be paid by debit card although cheq-ues and direct transfers are equally acceptable.
For advisers who do not want to go through the process online, the business can be established by fax or via the adviser's designated service centre contact who will carry out the process over the phone.
This flexibility is useful but I would encourage readers to try the full online experience as I think this demonstrates the power of the system far better than a paper process.
IFAs will be able to access the Selestia online tools from Monday, November 19 and can register in advance to do so at www.selestia.co.uk.
Clearly, these tools have a great deal to offer IFAs looking for an asset allocationbased approach to investment.
They also strike me as ideal for supplying to advisers as “white-label” components for their own websites. They could be ideal for using in the context of a discounted site where an adviser might want to take only limited level of income where clients operate on a self service basis.
The priority was obviously to get a dedicated IFA service up and running so I can understand why such facilities are not available from day one but I hope they will not be too far behind.
Overall, Selestia has achieved an excellent level of functionality at day one and there can be no questioning the value these tools add. But the tools would be even better if they could communicate with advisers' own systems.
The real test if the company is to become one of the market-leaders in adding value to advisers as well as their clients will be how well it addresses such issues in the near future.
Ian McKenna is a consultant and director of the Financial Technology Research Centre, which works for a wide range of industry organisations, life offices and technology companies, including Microsoft, Assuresoft and The Exchange. He can be contacted by email at email@example.com
Tel: 020 7935 2599