Weekend Digest for IFAs and Financial Planners (13 & 14th Oct)

In this post we have cut through the maze to give you a summary of the relevant stuff this week. Click on the title to read the article in full (opens new window). So here goes…                                                                                                                                                                               


Rocking the ‘Risk Profiling’ Boat Again? 

Is he selling his products or simply saying ‘what has to be said?’  That is  the first thing that comes to your mind when you hear that the founder of a firm that supplies risk-profiling tool for advisers has been going around telling everyone that many advisers are shoe-horning clients into unsuitable funds based on the answers given in psychometric risk questionnaires.

In a press release about their new Funds Risk Assessor, eValue founder Bruce Moss said: “Risk profiling tools in the UK bears all the hallmarks of past mis-selling disasters and advisers and consumers alike should be concerned’

 This was followed by a presentation last week, in which Moss seemed to refer to Centralised Investment Propositions (CIP) as ‘single fund solution’ and that advisers map this ‘to output from psychometric risk questionnaires.’  I think most of us will agree that this is NOT what CIPs are and certainly NOT what IFAs do.

I have to say though, that this practice is common among the large tied/multi-tied distribution channels such as banks and building societies.  Having gone through his presentation slides myself, I think Bruce Moss  does has a point! Advisers needs to be very careful when using CIPs, avoid completely on risk-profiling tools and consider wider definition of risks and their implication for clients.   

You can see the full presentation here  https://www.advisacenta.com/henry-stewart-conference/


FSA Tells Providers To Snitch On Adviser?

A compliance expert Peter Turner claims that the FSA is asking SIPP providers for lists of advisers who have put client funds into  UCIs. 

You will be forgiven for thinking that anyone who’s recommended UCIs  is pissing in their pants by now but my guess is it won’t  come as a surprise at all to most.  They probably have the compliance gurus dotting all over their files by now, I would have thought.


Modern Portfolio Theory: Red or Dead?

This article by Larry Swedroe of US-based advisory firm BAM Advisory Services, is a rather short but sweet response to an attack on MPT by Richard Haworth, a London-based absolute return fund manager.

In his article in Pensions & Investments Online, Haworth argues that the fallout from the 2008 financial crisis proved the MPT is flawed. His key point is that MPT  assumes that correlation between asset classes is stable but as the systemic crisis of 2008 unfolded, hitherto uncorrelated asset returns began to move together and the protection promised by traditional diversification, as preached by MPT failed.

Swedroe argues that the flaws aren’t with MPT, but with its interpretation. First, MPT  never states that volatility and correlations are constant and any student of financial history would know that over time correlations between asset classes are in fact volatile.


Independence Vs. Restricted:  Prodcut Filtering By Investment Committees

Keeping the independent vs restricted debate active, Carl Lamb of advisory group Almary Green suggested that firms who what to remain independent post-RDR should have their own standalone investment committee and have the committee filter out products based on their views. The suggestion is that if you have an independent committee, which meets regularly to review your funds/products and their views on ‘excluded’ products are documented; the firm can continue to describe themselves as independent.

As you might expect, someone at the FSA replied that this sorts of ‘fast track’ product exclusion simply won’t cut it!

Off course a firm’s investment committee should be independent and regularly consider products that they don’t consider suitable for their ‘typical clients’ and document why,  but this should NOT be a blanket exclusions of those products.  The ‘acid test’ is whether you are able to advice of these, for example where the client specifically requests them or already has them.

So at client level, if the firm cannot or will not advise on a particular product type,  regardless of its suitability for the client then its advice will be defined as restricted.’ You would have thought that is ‘simples!’


That’s it this weekend. Take a  look at our Midweek Digest (10th Oct) to catch up with the other summary of articles and debates earlier in the week. As always, we welcome your thought and comments.





Abraham Okusanya
Abraham is the founder of FinalytiQ, a research consultancy for platforms, asset managers, and advisory firms. Recognised as one of the country’s leading experts in retirement income, platforms and investment propositions, Abraham has authored several papers on these subjects and delivered talks to the Personal Finance Society, The FCA and several conferences across the country.

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