Ray Chinn assesses the financial challenges facing advisers reviewing client portfolios
Usually it is advisers who benefit from clients who are asset rich but time poor – with the client reliant on the adviser to sort out their financial affairs, and preferring to pay for this service rather than find the time to do it themselves.
Now – in the true sense of ‘what goes around, comes around’ – it is advisers who are finding themselves in an asset rich/time poor scenario.
I am referring to advisers who have large elements of ‘legacy’ or ‘orphan’ clients – possibly through acquisition, or possibly through history, in terms of clients who ‘bought’ into group personal pensions sponsored by their employers but have asked for little in the way of advice since. Finding time to deal with all of these clients can be a challenge – yet collectively these clients can own significant assets – all of which can provide a steady stream of ongoing annual remuneration if managed efficiently.
Regardless of case size, the regulator expects advisers to frequently assess a client’s attitude to risk and to rebalance the investment portfolio accordingly, but for some clients this may appear uneconomic.
This is a deliberately simplistic example but demonstrates the dilemma facing advisers – even the £250,000 case may be a strain on margin if a full review of investment options is to be considered.
One solution would be to charge the client a fee to make up any shortfall – although many would probably point out that the client with the £25,000 fund is unlikely to stump up £1,250 to receive ten hours worth of advice.
Another solution is to find a cost effective way of delivering the advice on an ongoing basis. Technology can help here. More and more advisers are now using risk profiling and asset allocation tools to help manage time spent with clients more effectively. Many of these tools offer questionnaires that can be completed by the client (online or offline) without the need for adviser intervention. One leading provider even has an ‘app’ for the iPhone or iPad if the client is that technology savvy.
Efficient investment frontiers
The responses from the questionnaire will usually identify a risk appetite which can then be used to drive out an asset allocation which balances risk and reward effectively along the efficient investment frontier. This can also be an exceptionally strong and robust methodology for dealing with pension transfers where it can help to demonstrate that the existing portfolio of investments is ‘inefficient’.
Having a robust and consistent model for assessing attitude to risk and building consistent asset allocation models can make the advice process much more efficient for advisers. However, it still does not deal with the area of fund research and selection, and the longer-term need to ensure that the asset allocation remains in line with the target.
In this respect a number of investment managers are now becoming savvier to helping advisers here by offering multi-asset vehicles built around specific risk appetites. In many cases these are regularly rebalanced to ensure they remain in line with the original target asset allocation. This provides an approach that can be repeated, time after time, client after client, in a consistent way.
Helping to ensure that clients are well advised, regulatory requirements are met, and giving the adviser an effective way of dealing with asset rich legacy/orphan client banks that would have just been too time consuming to deal with otherwise.
Ray Chinn is head of pensions at LV=
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