June 2019

EBI Portfolio’s World Investment Range

PlanPlus Global - Friday, 21 June 2019

We are pleased to announce that EBI Portfolio’s World Investment range is now mapped to the FinaMetrica risk tolerance scores, alongside EBI’s existing UK bias and Global range.

EBI model portfolios are an evidence-based investment solution, giving investors access to a highly diversified and low-cost suite of portfolios. The evidence employed is the product of many decades of independent, peer-reviewed research and analysis by some of the world’s leading academics, including numerous Nobel laureates.

The World portfolios pursues a core strategy of exposure to c. 9,000+ global developed and emerging market equites with increased allocations to Value, Momentum and Smaller Companies stocks. In addition, to reduce volatility, the portfolios have a strategy of exposure to a highly diversified portfolio of c. 11,000+ investment grade governmental and corporate bonds, currency hedged to eliminate foreign exchange volatility.

Risk-scores Are Critical Under New Product Design Rules

PlanPlus Global - Saturday, 01 June 2019

Risk-scores are becoming critical to ensuring the sale of suitable financial products to investors, as Australia introduces new product design and distribution rules that echo the PROD rules in effect in the United Kingdom.
 
Risk-scores come into the spotlight because the product design rules (PROD) are suitability-focused. This means that product issuers must define target markets for a product and makes sure that most sales occur only to that nominated target market. Matching the level of risk inherent in a financial product with the risk-profile of the investor is core, critical component of the product design and distribution rules.
 
In the UK, more than fifty fund-managers have already mapped their retail managed offerings to risk-scores from the FinaMetrica Profiler. This was happening even before the PROD requirements emerged, as the FinaMetrica methodology for mapping an investor's risk-score to asset allocations was very useful to advisers wanting to ensure they had their risk-matching right. Now, with PROD, this level of extra care has become mandatory.
 
However, the UK journey down the PROD road has only just begun and, for some, it's a bumpy ride! Financial advisers also have responsibilities under these rules. They must segment their client-base to ensure that each segment is only offered products that are suitable for them — and select and provide a range of products suitable for each segment. It is a lot of extra work, at a time when UK advisers are still bedding down MiFID II suitability rules and the Senior Manager & Certification Regime requirements.
 
The new Australian laws closely follow the PROD rules, giving it the chance to learn from the UK experience.
 
The first lesson is that product-issuers and advisers need to be on the front-foot to deal with the work of segmenting clients and products. Once it's done, it's done. But getting the work finished can end up taking much longer than anticipated, as many firms in the UK have found.
 
Australia has a two-year transition to allow firms to prepare for the new product design and distribution rules, meaning they will commence in April 2021.

FCA Commences Review of Financial Advice Market

PlanPlus Global - Saturday, 01 June 2019

The Financial Conduct Authority (FCA) has commenced a review of the state of the financial advice market in the United Kingdom, to determine how well it is delivering on positive consumer outcomes.
 
The review will explore the effectiveness of two major changes that were intended to improve distribution of financial services products to retail investors:

1. Retail Distribution Review (RDR) - in effect from 2012. Raised adviser standards, banned commissions as payment for advice and change disclosure of charges.
2. Financial Advice Market Review (FAMR) - launched in 2015 to address concerns that the financial advice market was not working well for all consumers.

The FCA says it is acutely aware that an 'advice gap' emerged under RDR, when it became unviable for an adviser to deal with small investors. The FAMR was meant to address this problem, but has not made the difference that was hoped for. This has meant that many people who have needed advice have failed to receive it.  
 
A key focus of the review will be distinguishing guidance from advice, and determining the role that guidance can play in helping to reduce the need for advice.
 
The FCA also says it's recognising that consumers and the market for financial services are both changing rapidly amid technological advances, changing employment patterns and inter-generational wealth transfers.
 
The industry is being invited to submit comment on these matters to the FCA, with a final report to be published in 2020.

Ontario Makes 'Financial Planner' and 'Financial Advisor' Regulated Terms

PlanPlus Global - Saturday, 01 June 2019

For the first time Canadians using the titles 'Financial Planner' or 'Financial Adviser' will be required to hold credentials from an approved body to prove their qualifications, under new laws proposed in the 2019 Ontario Budget.

The Financial Professionals Title Protection Act, 2019 closes a gap that allowed unqualified people to use the terms financial planner or financial adviser to represent themselves as more qualified and capable than they are. Canada's governing body for financial planning, FP Canada, has campaigned for this change and welcomes the announcement.

The word ‘Planner’ in combination with any of the following words, for use in titles, would be expressly prohibited for anyone not holding an approved credential:

 

• Financial
• Wealth
• Retirement
• Portfolio
• Asset
• Asset Management
• Investment
• Securities
• Mutual Fund
• Insurance
• Mortgage
• Money

 

For a credential to be recognized it must meet these standards:

 

• A focus on financial planning to ensure that holders of a recognized credential (Holders) would be able to meet a wide range of consumer needs;
• An education or course requirement to ensure Holders have a solid educational grounding in the area of financial planning;
• An examination requirement that will serve as an objective measure of the Holders’ mastery of course material;
• A code of ethics or standards, which will ensure that Holders are required to act in an ethical manner and follow a standard of conduct in their dealings with clients;
• A continuing education requirement which will require that Holders keep up to date with changes as the marketplace evolves; and
• A disciplinary process and mechanism for revoking the credential when warranted. The disciplinary process results must be publicly reported and easily accessible for consumers, in a timely fashion.

 

For individuals currently using the title “Financial Planner”, the government will consider an appropriate transition period to allow sufficient time to acquire a recognized credential.

The proposed legislation is a significant step towards improving consumer protection by reducing confusion and providing clarity to help consumers make informed decisions about whom to approach for financial advice.

Meanwhile, the government intends to create a new central, publicly-accessible database for all
financial planners in Ontario. The central database will provide a one-stop-shop where consumers will be able to verify whether or not an individual holding himself or herself out as a Financial Planner holds a recognized credential.

Calls For Psychometric Risk-Profiling To Be Made Canada's Gold-Standard

PlanPlus Global - Saturday, 01 June 2019

The Investor Advisory Panel wants psychometrics to be adopted as best-practice for risk-profiling and criticises the CSA's Client Focused Reforms proposal for falling short of adopting an overarching best-interest standard.

In its Annual Report the Panel says it recognises that investors gain some protection from the inclusion of best-interest principles in areas including know-your-client, know your product and suitability. But it says an overarching best interest standard is needed to fill the gaps that arise when a matter is not specifically dealt with by the proposed reforms.

The Panel's call for psychometric testing to be made the gold-standard continues its long campaign to improve standards around risk-profiling. In 2015 PlanPlus assisted the Panel by preparing a report on the way risk-profiling was done in Canada, uncovering a lack of understanding of what makes a risk-profiling methodology valid. The report also found a lack of standard definitions and risk concepts.

The Panel was pleased to see the recently announced legislation to regulate and restrict the use of the terms financial planner and financial adviser, as it had previously identified that seniors were being misled by the lax usage of terms that implied specialist skills.

The Panel is continuing its long-running campaign for an end to embedded commissions and welcomes the proposed CSA amendments that will ban mutual fund deferred sales charges and payment of trailing commissions to order-execution-only dealers.

The Investor Advisory Panel works with the Ontario Securities Commission to identify areas of risk and concern for retail investors and represent the needs of investors in the formulation of regulation. The Panel is comprised of nine members appointed by the Chair of the Ontario Securities Commission following a public application process.