March 2019

Four Ways Technology Is Paying Off For Advisors

FinaMetrica - Monday, 25 March 2019

The business of giving financial advice is being fundamentally changed by the growing use of technology by financial advisors. It's enabling and empowering them to do things quicker, better and more profitably.
 
Advice technology — such as a risk profiler or financial planning software — is an investment in the business. Investing wisely can see the business reaping dividends in four ways.
 
Greater efficiency and easier compliance
 
The main benefits most advisors want from advice technology are around efficiency and compliance.
 
Technology makes advisors more efficient by cutting down on the amount of work they need to do, and time they need to spend, with each client.
 
Tasks which were carried out by the advisor can now be done in other ways. For example, clients can pre-populate data and complete a risk tolerance assessment without the advisor's involvement, or market data can be electronically exchanged automatically rather than being manually keyed-in. 
 
Meanwhile, the technology helps the advisor to better explain to the client what is being recommended, and why. The data inside the system can quickly be manipulated to produce words, tables, graphs or animations to suit the client's mode of understanding. A planning business could not hope to produce these communications tools manually.
 
Technology encourages and enhances compliance as, through its processes, it requires and enforces extensive record keeping. It's also an ever-watching eye that signal an alarm when normal processes or boundaries are broken.
 
Advice firms around the world are coming under increasing regulatory loads requiring them to rigorously document their recommendations — and the process that led to those recommendations. Advice must be suitable, but that alone is not enough - everything must also be auditable.
 
For some firms — particularly large organizations — and 'end-to-end' financial planning software solution offers the best outcomes. The entire transaction can be delivered within a single environment, from know-the-client to the final recommendation report and subsequent reviews.
 
Other firms have an equally robust process built in a 'mix-and-match' style, where they can bring together best-of-breed tools to deliver the advice process. But each of those tools must be able to meet those same standards of documenting and notifying when exceptions arise. For example, a 'stand-alone' risk profiler must deliver a comprehensive report on the facts of the client's circumstances and the outcomes of their financial risk tolerance assessment.
 
The capacity of a technology-based system to 'sound alarms' in real-time is critically important.
 
The technology allows the firm to monitor and regulate the behaviors of its advisors in real time. In some cases it will prevent advisors from taking certain actions, while in others it may immediately report what has occurred to managers or compliance departments. It can also ring alarm bells to the advisor themselves — warning when an aspect of the advice might be falling beyond the client's parameters or outside of the firm's operating guidelines.
 
Higher profits
 
The immediate profit uplift from technology comes from the improvements to efficiency and compliance. An advisor supported by automation can spend less time with each client, allowing them to see more clients per day. Meanwhile, compliance is a dead-weight cost to the business so any cost-reductions feed directly into profit.
 
But there is another, less obvious, contribution to profits.  
 
Surveys have shown that advisors who embrace technology grow their number of clients by 5% more than typical advisors, while assets under management grow by 9-10% more.
 
Better customer service and outcomes
 
Technology allows firms to serve their customers more often, at negligible cost. Communications can be more frequent, more relevant and personalized. Regular reporting can be made richer and more meaningful, by reporting performance against goals and delivering information in multiple formats such as customized images, graphs and multimedia.
 
The technology encourages contact, transparency and individual understanding. It is a better experience for the client and, critically, the essential foundation for building a trust-relationship.
 
At the same time, the technology is likely to deliver better outcomes for clients because it operates consistently, predictably and without error. Even the best of us know how hard it is to meet those three standards day in, day out - client after client. We can all make a mistake or be distracted by other things — but the technology will not.
 
Improved customer engagement, retention and acquisition
 
Customers like it when firms take the time to know them properly, build a trusting relationship and talk to them often in terms they can understand. It engages them, makes them want to stay around and tell their friends about it too!
 
Unfortunately, the advice industry has a poor record of customer engagement and retention while acquisition of new costumers is a continual challenge.
 
Technology is helping advisors to change. 
 
Engagement problems have frequently traced to a lack of understanding — people simply 'switch-off' from things that they do not comprehend. But technology allows information and data to customised and personalised.
 
For example, in addition to the usual numeric reporting of performance a client might receive a personalized infographic showing how they are progressing toward their financial goals. The reporting can be online, interactive and as much, or as little, as the client decides they want - they are in more control of their financial destiny.
 
This is particularly important given the rapid extinction of physical mail. Your customers now live 'in the cloud' and expect that you will be too — with more than just the same-old paper reports you used to send by snail-mail. They expect to click and pinch and drag on the screen, as they do with their other online services. But this can't happen when all the data about their financial plan is locked inside an old-fashioned filing cabinet!
 
Clients today want to connect with you from anywhere, on any device, at any time. This is particularly true of younger clients, who have grown-up with access to everything quite literally at their fingertips!
 
Clients who are engaged and having their needs met have less reason to end their relationship with their financial advisor, whereas disengaged or unsatisfied customers are easily dislodged by competing offers. This might help explain the traditionally high churn-rate of customers in the financial advice and wealth management sectors.
 
Happy customers are also proven to talk about their happiness with their friends, providing the single most powerful marketing tool that any advisor can have - a word-of-mouth referral from a trusted associate.

FinaMetrica Reveals Industry’s First Fund Mapping 'Suitability Seal'

FinaMetrica - Wednesday, 20 March 2019

FinaMetrica, part of PlanPlus Global, has developed a new fund mapping 'Suitability Seal' to help financial advisors evidence, with confidence, that the investment portfolios they recommend are appropriate in terms of their clients' risk tolerance and specific needs and circumstances.
 
In the fund management industry, the mapping of portfolios to risk bands has almost always involved matching a risk tolerance score to a determined range of equity exposure in any given portfolio. When conducted correctly, through a psychometric test, an individual's risk tolerance measures their willingness to take on risk in line with their personality traits. When tolerance is conducted incorrectly, through an unscientific and unproven method, the resulting mapping is effectively meaningless, indefensible and dangerous. A reliable risk tolerance assessment is the foundation of suitable investment advice.
 
However, as Paul Resnik, Executive Director of PlanPlus Global has said: "Risk tolerance should not be the only indication of the suitability of a portfolio recommendation. We now have the ability, through technology, to be more scientific and accurate in our measurements. Risk profiling processes are always evolving, always improving. That's what we should all be striving for in the financial services profession."
 
That's why we are pleased to announce that SuitabilityPro^TM mapping will take into account an investor's risk tolerance and their risk capacity - which considers time-horizon, behaviour and emotional composure at the time of the risk profile assessment, as well as the investor's experience. This new and improved approach highlights an investor's willingness to take on risk and, importantly, their ability to do so. This is a significant evolution in the practice of fund mapping that raises the suitability bar considerably.
 

"An individual's capacity to take investment risk has the potential to impact their overall risk profile. Sometimes that impact can be considerable. That's why it is vital to properly assess both willingness and ability before mapping to any portfolio. In doing so, FinaMetrica has developed the industry's  first 'suitability' fund mapping process", says Shawn Brayman, CEO, PlanPlus Global.
 
"Advisors should regularly reassess their client's overall risk profile to ensure the portfolios recommended remain suitable. While risk tolerance does not change significantly over time, people's behaviours and their capacity to withstand losses do change, especially as time horizons shorten. Through the FinaMetrica process, advisors can easily demonstrate the value of their ongoing service fees."
 
FinaMetrica subscribers can now be reassured that whenever they see a FinaMetrica fund mapping 'Suitability Seal', their portfolio recommendation has been assessed at the highest possible risk-profiling level.
 
What is the Suitability Seal?

A wide range of fund providers retain PlanPlus Global/FinaMetrica to review their portfolio solutions to determine the appropriate level of growth assets to apply for each solution. For each level of growth assets (0% to 100%), there is an associated range of scores where the solution would be suitable for clients. The results are provided in a table form as shown below.
 
The Suitability Seal is an easily-understood visual representation of the OK Risk score range.
 
Why is there a range for a fund?
In a well-constructed portfolio, a client who is comfortable with 45% growth assets, will also be comfortable with 46% or 44%; 47% or 43%; and so on. Hence, we show a comfort range, as well as marginal ranges between comfort and discomfort on both the upside and the downside.
 
How do you determine the range for a fund?
The full methodology is documented in our Asset Allocation Mappings Guide, in simple terms, we evaluated the responses of hundreds of thousands of people who have completed the FinaMetrica risk tolerance assessment. This enabled us to determine the amount of growth assets investors "prefer" to have for various levels of risk tolerance. This data was then used to determine a relationship between score and the level of growth exposure preferred.
 
How do I determine the score for my client that maps into these funds?
You start with the most researched and validated psychometric risk tolerance assessment in the world, from FinaMetrica. This will produce a score between 0 and 100, unique to each client. Advisors then need to consider other factors, such as capacity for loss, time horizon, previous investing experience and other influences to determine if they need to adjust this tolerance number to arrive at a more holistic score (sometimes called Attitude to Risk or Risk Profile). If these other considerations are not limitations for the client; then the Risk Tolerance number is the same as the Profile.
 
The new SuitabilityPro^TM: FinaMetrica Profiler offers a more formalized methodology to support advisors in how to apply their professional judgement by further determination of factors such as a client's capacity for loss. The resulting "Suitability Score" combines all the factors an advisor must weigh in making their recommendations.
 
Can a client have more than one number or map to more than one portfolio?
Every client has one "tolerance", in the same way we each have one IQ or one body temperature. However, while some clients want to manage all of their money in one "bucket" or portfolio to fund all of their goals; others may create "multiple buckets" that are intended to finance different goals, for example, a portfolio for retirement and a different one for their children's education. In that case, each portfolio can have a different time horizon, capacity for loss and be of different levels of importance to the client. The result would be a different suitability score for the portfolio associated with each separate goal.
 
This introduction of the industry's first fund mapping 'Suitability Seal' follows our recent announcement of our upcoming launch of SuitabilityPro^TM, the world's first end-to-end connected suitability process, which combines FinaMetrica's world-leading psychometric risk profiling solution with multi-lingual, multi-currency, multi-country, and multi-award-winning financial planning software, along with a new portfolio monitoring tool that continuously ensures advisors' clients remain suitably invested over time.
 

AJ Bell Adds Pactive Funds to FinaMetrica Mapping

FinaMetrica - Tuesday, 19 March 2019

FinaMetrica is delighted to map AJ Bell’s Pactive funds. The new ‘Pactive’ funds is a version of its popular Managed Portfolio Service (MPS) which blends its actively managed portfolios with its passive funds to offer financial advisers greater choice when advising their clients.

AJ Bell’s MPS currently gives advisers sixteen portfolios that are broadly diversified across asset classes and regions. The portfolios are targeted to meet six different risk levels and are mapped to all the main risk profiling tools used by advisers, with an active and passive option for each of the six risk levels. There are also four income portfolios, two active and two passive. All portfolios are automatically rebalanced quarterly to ensure they remain aligned with their objectives.

The new Pactive portfolios are aligned to the same six risk levels as the existing portfolios and are invested half in the current actively managed portfolios and half in AJ Bell’s Passive funds.

The AJ Bell Pactive funds build on the successful MPS that was launched in late 2016 and have already been mapped to FinaMetrica.