Your investment proposition is one of the lynchpin documents of your firm. It summarises how you manage your client’s money and demonstrates your firm's tone of voice through branding and language. At Sense we pride ourselves on the success and diligence of our financial advisory firms, below are 5 key pillars of proposition building, based on the documents created by our network of Advisers.
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1. Understand the tools you are using within your advice process.
When utilising 3rd party tools in your advice process, it is essential that you have a good understanding of the methodology, assumptions incorporated, and outputs. Are the assumptions consistent with others used within the advice process and realistic? Where assumptions can be selected on an individual basis, are they consistent throughout your practice?
2. Ensure you are using one consistent definition of risk throughout your advice process.
Throughout your advice process it is important to ensure a consistent definition of risk to avoid miscalibration. Utilising the same methodology for assessing the risk inherent in a clients existing portfolio, their actual risk profile (following discussions around attitude to risk and capacity for loss), and the risk of a suitable alternative solution being proposed is critical.
3. In-house portfolios and carrying out a value assessment.
When running in-house portfolios for clients, it is important to clearly document all of the processes involved in building, monitoring, and reporting. Relevant benchmarks should also be chosen, which allow suitability to be reviewed on an ongoing basis, plus a value assessment to be carried out. Appropriate metrics to review include performance, volatility and maximum drawdown of the portfolios against the benchmark chosen, taking into account the changes made to holdings since inception. It is also important to remember that only actual performance etc achieved since inception can be illustrated.
4. Segmentation and PROD.
Client segmentation has become increasingly important as a result of the FCA’s Product Intervention and Product Governance Sourcebook (PROD); ensuring investment solutions and products recommended to clients meet the needs of one or more identified target markets, are distributed appropriately and deliver good customer outcomes.
It is important to segment your clients based on commonalities and needs. Life planning stages are often used by advisory firms as they help to categorise clients with similar circumstances and needs along the planning journey.
5. Research and due diligence
Carrying out robust research and due diligence is not only applicable at outset but on reviewing your proposition. The FCA in TR14/5 Supervising retail investment advice: Delivering independent advice outlined their expectations and identified the two stages as:
a) Researching the market and drawing up a shortlist of products/services to meet client needs
b) Carrying out due diligence on the product or service to check it is appropriate. In particular, is it appropriate to entrust the provider with client assets?
It makes perfect sense to narrow the field then check the detail.
Carrying out a similar process is also applicable at review as it ensures you continue to objectively consider a wide range of investment solutions plus the market is continually evolving.
