Couldn't make it to the PIMS conference last week? Don't worry, IFAonline brings you the best better business tips from the boat. First up, will your investment process stand up to scrutiny by the FSA or the courts?
Saran Allot-Davey of Heron House Financial Management opened PIMS 2011 with a keynote address on how the FSA is taking firms' evidencing of their investment process seriously, which means advisers should too.
"Create a detailed document explaining your investment process," she said.
"It will aid the writing of suitability letters, meet the FSA's increased preference for consistency, and will help attract clients by making it clear to them exactly what you do when you invest their money."
Evidencing your investment process - the key points to include:
1) Statement of your firm's beliefs and principles
2) Approach to asset allocation - and why
3) Any limits on funds, sectors, asset classes
4) How decisions are made - what models are used
5) Who makes the decisions
6) How existing funds are dealt with
7) Discussions of expected returns and timeframes
8) Risk tolerance
10) Use of wraps and platforms
Allott-Davey added: "In the massive transition firms are undergoing ahead of the RDR the FSA is concerned advisers are contiuing to demonstrate suitability.
"Once your investment process is documented, make sure you have a clear idea about who this proposition is appropriate for, and who it isn't."
Paul Williams of AJ Buckley Asset Management explained the flaws in relying on stocastic modelling and risk-profilling tools.
"Stochastic modelling is smoke and mirrors. If you're relying on this box of tricks to give clients returns, look at the statistics.
"Most investors are short-term, and over one year the numbers show the probability of positive returns is very near random.
"As for risk-profilling tools, you can't rely on those alone. The FSA has said nine out of 11 have flaws."
Also from PIMS 2011:
A question of selectivity
Watchdog interviewed 13,000 people
Debate over loyalty bonuses