While going the extra mile for your clients is an integral part of your service proposition, moving heaven and earth may be somewhat of an over promise.
With product distinctions becoming blurred the focus is moving inexorably awayfrom the product sales towards giving clients holistic advice, with overall assetallocation the key underlying theme.
When making asset allocation calls, the danger is to follow last year’s best performing asset type. As the table below indicates, this tactic may have proved beneficial if property had been considered over recent years, but clearly this is a risky approach for all a client’s holdings. Such outperformance is unlikely (at least statistically speaking) to be repeated with any degree of consistency in future.
| 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | |
| Best | Property | GEMS | Property | Property | Global Bonds | GEMS |
| Worst | Global Bonds | Global Bonds | North America | Japan | GEMS | UK Gilts |
As our old fictional friend Don Quixote wisely suggested, a wise man should not venture all his eggs in one basket (Miguel Cervantes 1547 – 1616). More recently in 1990, Harry Markovitz won the Nobel Prize for his Modern Portfolio Theory, which basically espoused the same ‘common sense’ concept but took it to the next dimension. By utilising rigorous statistical analysis, his Modern Portfolio Theory suggested that efficiently diversified portfolioscould be constructed to reduce risk and enhance returns.
How easy is it to assess a client’s risk profile?
A sensible starting point in portfolio construction is to consider risk and how this is understood from the client’s perspective. According to IFA Census research (November 2004) 8 out of 10 IFAs assess a client’s risk profile manually, using their in-house fact finds. But can IFAs who use this approach clearly demonstrate that their clients have really been given a clear understanding of the risks involved and potential rewards of a ‘cautious’, ‘balanced’ or ‘aggressive’ investment strategy?
How is easy is it to structure a client’s portfolio?
According to this research 47% of IFAs create individual bespoke portfolios for their clients, whereas 18% used broad-based managed funds. However, working through the universe of over 14,000 collective investments to select the best managers is beyond the worldly powers of most IFAs. The danger is to rely on last year’s top performing funds, without properly considering the best blend of fund manager styles, to improve a portfolio’s return without increasing the risk. How cost effective is this process for a case size of £30,000 into an Investment Bond? And what about the ongoing portfolio review service – can this be offered realistically to anybody other than the highest net worth clients, if the process is entirely manually driven?
Introducing The Dynamic Portfolio Planner from Friends Provident
The Dynamic Portfolio Planner (DPP) is a new initiative from FRIENDS® that provides a sophisticated yet intuitive and easy to use investment planning tool, designed exclusively for IFAs. The benefits of using use e-commerce to reduce the time you spend reviewing, researching and making investment recommendations
are significant.
Taking a high level view of DPP, the key attractions are:
- It’s an advice-led tool rather than a solely product-driven version, taking into account a client’s overall portfolio of investments and lifetime goals
- There is a look-through asset allocation feature that saves considerable time when analysing the client’s existing arrangements
- It provides a well-defined, simple and easy-to-use facility to determine a client’s attitude to risk
- It forecasts future investment returns using a sophisticated stochastic investment model.
- Seven carefully blended sample fund portfolios are offered in conjunction with OBSR, taking the fund research process out of the equation. Each is backed up by comprehensive suitability letters available on-line, which can be easily downloaded onto your PC or included in client reports
- It develops a high-quality lifetime plan which can be reviewed regularly at the touch of a button, thereby establishing a more integrated client relationship
- You will be able to deliver high quality portfolio reports and updates in a timely fashion.
- It will improve the consistency, compliance and quality of financial planning and advice provided.
- It offers full client management facilities via your own adviser control centre on the DPP.
So why not take a dynamic leap forwards by just clicking your mouse on to:
www.friendsprovident.com/ifa/dpp
Jim Henning
Investment Marketing Manager
Friends Provident
