The coronavirus pandemic has highlighted the importance of pre-funding on adviser platforms, writes Alistair Ward, who emphasises how it can help the adviser/client relationship
Months of market volatility has dented investor confidence. Many clients are concerned about lost time in the market and the prospect of further falls. Anything advisers can do to alleviate this for customers is key.
That's why, when times are uncertain, platform features that are often overlooked, undervalued, or taken for granted suddenly become far more important.
In the platform world, one feature that has grown in rank since the pandemic unravelled is the notion of pre-funding. In short, this is where a platform company will either invest or pay out a client's money before that money has even been received by the platform.
Most major platforms already automatically pre-fund any switches or rebalancing within a portfolio. A number will apply the method to pension tax relief, preventing clients from having to wait up to 65 days to get relief invested, and a few pre-fund additional transactions, including direct debits, regular contributions or withdrawals.
Pre-funding offers a number of benefits. It speeds up transactions, improves the customer experience, gives investors more time in the market and reduces price uncertainty.
For example, clients could be saved four to six days out of the market if their platform is willing to pre-fund new fund switches for them. That way, units in the new fund can be purchased as soon as a sale price is available for the old one, rather than waiting until the sale is completed and the money received, which risks missing any bounce.
And in the case of withdrawals, it also means clients aren't subject to any unnecessary delays when they need access to their money. A definite benefit for any client looking to access money quickly.
In these uncertain times we find ourselves in, pre-funding is all the more important. The shorter the time out of the market and the increase in control that advisers have over their clients' investments will almost certainly help to reduce clients' fears at what is already an incredibly stressful time.
Without pre-funding a lot can happen to a fund between Monday when you want the money to be invested and the Thursday when it actually is. However, with pre-funding, the platform provider takes on that risk instead of the client.
Meanwhile, it allows advisers to meet a client's needs both quickly and more efficiently, giving them greater control to make the right decisions.
Pre-funding is arguably more nuanced at a time like this, with the turbulent and volatile markets we've seen recently meaning that accelerating an investment could be a risk if the market falls again. However, looking at it as a long-term investment, the benefits to be had are bigger and could be worth the risk.
For a client feeling either nervous about the market environment, or eager about the opportunities it offers, pre-funding will without a doubt improve their experience - they know what is happening sooner, and the adviser will be able to offer them increased peace of mind.
So, while pre-funding might be a small part of the big picture, it's an important one to bear in mind when you're looking at the details of how your platform works. It could help reduce stress levels all round - giving greater control and certainty during a challenging period.
Alastair Ward is head of platform design at Standard Life
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