Consistency is fundamental. All financial advisers in the UK will be aware of the FSA’s TCF programme, in many ways the widest and most profound regulatory initiative since the enactment of the Financial Services Act in 1986.
From an IFA viewpoint, the programme’s intent has never been a contentious issue. Most IFAs are small businesses that are close to their clients and pride themselves in their client relationships. It is fair to say, however, that proving this is sometimes tricky and one area where this has been true is in the consistency of advice.
How does a firm ensure that two, four or ten clients who are classified as ‘balanced investors’ are all treated fairly in the sense that the actual advice given is based on some form of process, not simply the whim of an individual adviser. Such whims could mean some clients being advised to buy particular funds whilst others are advised concurrently to sell the same funds. Worse still, the risk categorisation of particular sectors may differ between advisers.
The consistency issue matters, even though advice is often seen as an art and about the individual, because inconsistency can mean clients getting second-rate advice. It matters because it can mean firms taking on liability unwittingly. It matters because it is difficult to train new advisers if there is no process, thus increasing barriers to growth, expansion or even succession planning.
For all those reasons, having a robust, consistent approach to the investment process is important when a firm is looking at its TCF strategy. Consistency is at the very heart of fairness.
How do we evidence that our clients are treated fairly?
That all Clients receive consistent advice irrespective of which Adviser sees them
That Clients are held in the right asset allocation for their risk profile
That action is taken across all Clients where a fund needs to be changed or the asset allocation needs to be rebalanced
The compliance requirement
The IFA is the agent of the Client. This means the IFA is responsible for the Advice, including Due Diligence and Suitability
So, in order for an IFA to be able to give Advice and prove Suitability the IFA must get 4 things right…… consistently!
Client’s Objectives and Needs – Fact-finding has been the subject of an enormous amount of training and is one of the most important skills in the Adviser’s armoury. No need to comment further on this one.
Appetite for Risk and Return – Historically Risk profiling was a choice of 3 profiles - Cautious, Balanced and Aggressive with little play in between.
Diversification of Risk and Return – Asset Allocation initially seemed to be no more than diversifying the Manager you chose to run this year’s Equity PEP. Fixed Interest & Cash more acceptable over time. Since overshadowed by classes such as Property – Residential and Commercial, Hedge Funds, Commodities, Fine Wine, Art, Viaticals, Timber …..
Fund Research for Return without unnecessary Risk – Cynically, for some IFAs it was a case of the last Broker Consultant who paid for Lunch or which fund was a Top 5 performing funds in the back of Money Management. A game as random as ‘pin the tail on the donkey’!!
Mostly this was due to the lack of Investment Content in the FPC/AFPC exams – even up to Chartered Level.