You may have seen in the press recently, the team here at FE have launched a new product in response to client feedback. FE Analytics+ Investment Planner is the latest addition to FE’s award-winning Adviser proposition. The Investment Planner brings together FE’s data capabilities, the FE Risk Scores and dynamic reporting solutions to offer Advisers a complete end-to-end investment process from profiling a client's risk appetite and capacity for loss through to selecting and reporting the most appropriate investment options for an individual client's needs.
As the industry prepares for a more rules based regulatory environment come January 2018; this blog post explores how the Investment Planner can help you achieve investment success for your clients whilst navigating some of the regulatory requirements that you face.
- Understanding your clients’ needs: MiFID II which comes into force on 3 January 2018 will introduce a rule that states that ‘firms shall take reasonable steps to ensure that the information collected about their clients is reliable’. The FCA’s guidance on the matter since 2011 has held that the use of risk profiling ‘tools can usefully aid discussions with customers, by helping to provide structure and promote consistency.’ Risk profiling tools however have been in the press a lot lately following Rory Percival’s ‘an ex-regulator’s guide to risk profiling’ report where he argues that to be effective enough to draw conclusions, an Adviser’s profiler tool ought to also help assess investors’ capacity for loss in some detail, prior investment knowledge & experience and investment term.
The Investment Planner uses a customised version of the eValue Risk Profiler tool built for FE Analytics. The stochastic profiler begins with 14 questions that the Advisers can complete with the client or send in advance of the meeting for the investor to complete without the Adviser’s input (best practice as suggested by Rory Percival). The profiler records investment term (including an option for less than 5 years), followed by the capacity for loss and knowledge & experience section, both of which feature a series of questions to be used as a prompt for discussion.
The profiler returns a risk level between 1-5 but is in no way prescriptive and is used alongside the term of the investment. Any differences between the tool and Adviser’s perceptions can be recorded with explanations.
- Mapping client risk categories to a suitable investment solution: A big part of ensuring suitability involves mapping the investor’s risk appetite to an appropriate investment solution. Best practice from the ex-regulator suggests that Advisers ‘ensure that they are comfortable with the mapping of investment solutions to the client risk categories'. This is particularly important if you are using a third party tool but don’t understand the underlying assumptions it makes in order to do the mapping. The Investment Planner helps advisers by mapping an investor’s designated risk level to a suggested indicative FE Risk Score banding. There is a banding for each risk level the questionnaire produces and as an adviser, whatever your investment proposition, you can test and select portfolios or funds to go into those bandings. The risk bandings are merely guidance and the tool gives the Adviser the choice to make amends as and when required. It also provides a handy warning sign should a mapped portfolio fall outside of the indicative risk score bandings provided.
What is an FE Risk Score? >
- Variety of investment types included: The investment planner does not restrict the number, type or variety of investment options that can be mapped. The screenshot below shows a list of FE Invest models mapped to a sample risk level but this list can include outsourced models, your own models/portfolios, passive solutions, Multi-Assets and more. As every portfolio has a risk score, the tool is whole of market. For Adviser firms that use different solutions across client segments based on investor need, AUM, legacy and so on or have a CRP alongside a CIP - Investment Planner can be particularly beneficial in supporting the provision of consistent investment advice across the firm.
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- Evidencing suitability: Once you have a shortlist of investment solutions in a risk score banded range, the Investment Planner allows you to create comprehensive comparisons between them for further analysis. This creates a well-documented audit trail which can come in handy whilst evidencing suitability and research.
The part of the tool that Advisers say really helps their client's understanding is the portfolio switching document. Once you have selected an investment option, you can plot a side-by-side breakdown of it against a client’s existing portfolio. This allows you to communicate the validity of your recommendations to investors in a clear yet engaging fashion.
- Completely independent source of data: Investment Planner is powered by FE Analytics, the award-winning research solution that provides whole of market data to more than 3,000 Advice firms in the UK. All the data on our systems is collected straight from source. Our risk and performance ratings are not restricted in any sense; they consider all funds within a universe and are never subject to a providers’ commercial relationship with us. Advisers can trust and use the new process with the assurance that it is truly fair and free from any bias.
Contact us at firstname.lastname@example.org if you would like more information or see a demo of the tool.