2016 Strategic Asset Allocation and Risk Profiles Implementation and Transition Guide

Transcription

1 2016 Strategic Asset Allocation and Risk Profiles Implementation and Transition Guide 1

2 Contents 2016 Strategic Asset Allocation and Risk Profiles and your practice... 3 Transitioning your clients... 4 Existing clients transition map... 7 In-progress clients... 8 In-progress clients transition map... 9 New clients New clients transition map Transition considerations Financial planning software implications Compass changes and implications Non-Compass users guide Further information

3 2016 Strategic Asset Allocation and Risk Profiles and your practice The 2016 Strategic Asset Allocation (SAA) and Risk Profiles, and 2016 Risk Profile Questionnaire (RPQ) will be released on 1 March All advisers will have two years, until 1 March 2018, to transition their existing clients to the new framework. However, from 1 March 2016, advisers will need to adopt the 2016 SAA and Risk Profiles, and new RPQ for all new clients. This guide will equip you with essential information on how this affects you, your clients and your business, and provides details on your next steps to make sure you re ready for launch. 3

4 Transitioning your clients Your clients will be affected differently depending on their circumstances, and the steps you ll need to take for each will vary. Some clients will move over immediately, while others may transition at some point over the next two years. It s important to remember that all clients will need to transition to the 2016 SAA and Risk Profiles by 1 March We understand the impact these changes will have on your business. Therefore, we ve developed guidance to support you in dealing with your clients existing, in-progress and new to ensure there s minimal disruption to your day to day business and help you meet your compliance obligations. Existing clients Existing clients are clients who have completed the former Risk Profile Questionnaire (RPQ) and are aligned to the former risk profiles and underlying SAA. Reviewing your clients Client declines the offer of review or client does not respond to the offer of review You must make an attempt to contact the client via phone or and document the attempt. If you make contact and your client decides not to undertake a review, you must document the client s decision not to do so. For each of these scenarios, you will still need to determine a new risk profile for your client. You ll also need to continue to monitor their portfolio to ensure they do not vary significantly from their risk profiles and notify your clients if this is the case (irrespective of whether they have accepted or declined a review). Over the course of the next two years, by 1 March 2018, you will be required to review your existing clients to ensure their risk profile and investment portfolio are transitioned to the 2016 SAA and Risk Profiles. How you contact your clients about their review and the review process itself will remain unchanged, however depending on whether your client chooses to accept the review or not will impact on your next steps. Client accepts the offer of a review During the review process you ll need to determine their risk profile and review their portfolio to ensure it aligns with the underlying SAA. This may or may not require a rebalance of their portfolio. See next page for information on what is required. 4

5 Determining the new risk profile Upon review you will need to determine your client s new risk profile. Option 1: Complete a new RPQ recommended option Complete a new RPQ to determine the most suitable new risk profile. If you do not have a complete risk profile questionnaire on file, you must complete the new RPQ. This may also be the case where the RPQ has been completed some time ago and the client s situation is significantly different from when they last completed the RPQ, for example they have recently retired. Option 2: Identify the 2016 Risk Profile that best reflects former risk profile You may choose to determine a new risk profile by matching this to the client s previous risk profile and asset allocation. For example, the former Moderately Defensive profile with 54% defensive and 46% growth best reflects the 2016 Balanced profile with 50% defensive and 50% growth. Former risk profiles - Defensive Defensive Moderately Defensive Balanced Growth High Growth Corresponding 2016 Risk Profiles* Conservative Balanced Growth High Growth High Growth Plus *Based on growth/defensive splits and underlying asset allocations. Once the 2016 Risk Profile has been selected, you must outline to the client the change to their risk profile name and description, including variances in the underlying asset classes. This must be provided in writing to the client. This could be either in the form of a letter, or form part of an advice document where required (see next section for further information). We ve created a sample 2016 SAA and Risk Profile client review letter for you to use, which you can find on cpal.com.au/saa-pis or on the Professional Investment Services (PIS) intranet. Where a client disagrees with the new profile, then the new RPQ must be completed. Reviewing your client s portfolio and aligning to the 2016 SAA Once the new risk profile has been determined you will need to review your client s current asset allocation and determine if a rebalance is required to bring their portfolio in line with the new risk profile and underlying asset allocation. Option 1: No rebalance required (portfolio remains within 10% of the allowed variances) Where a portfolio remains within +/-10% of the allowed variance, from a defensive and growth allocation, no rebalance is required and an advice document is not required. However it s important to outline the change in the risk profile name and description, including variances in the underlying asset classes. You must inform your client in writing by letter or . We ve created a sample 2016 SAA and Risk Profile client review letter for you to use, which you can find on cpal.com.au/saa-pis or on the PIS intranet. You may choose to send your client a Record of Advice (RoA) if you prefer. 5

6 Option 2: Rebalance required (portfolio sits outside the allowed +/-10% variance) If a portfolio sits outside the allowed +/- 10% variance, then a rebalance is required. You will need to arrange a meeting with your client to present an advice document explaining: 1. Change in risk profile name (for example previous profile Balanced to new profile Growth ) and include new profile definition. 2. New rebalance recommendations. 3. Any variances great than 10% to the new asset allocations. 4. New adviser service fees or changes to existing ongoing advice fees where applicable. 5. Changes to product fees such as new ICR associated with a new underlying fund (if applicable) or buy/sell spread differential. Advice documentation You ll most likely need to produce and issue your client a Record of Advice (RoA) however where there has been a significant change to the basis of advice and/or client s financial or personal circumstances, a Statement of Advice (SoA) may be required. Aligning your clients portfolio It may not be in the client s best interest to transition immediately to the new SAA, for example due to tax consequences and so on. Therefore advisers have the following two options: Option 1: Immediate shift If your client has no material tax or other issues resulting from transitioning to the 2016 SAA achieved by buying and selling to meet new neutral positions then it would be appropriate to shift them to the 2016 SAA and Risk Profiles immediately. Option 2: Gradual shift If your client has substantial tax or other issues or if you/your client would prefer to manage the transition over the course of the transition period without too much disruption to their current portfolio, then you may shift gradually. This can be achieved by gradually selling and buying and/or using cash-flows such as regular savings plans. Clients with existing pre-defined model portfolios from a third party such as Lonsec or Zenith can transition as per above options. Differences between risk profile asset allocations can be found in the 2016 Strategic Asset Allocations and Risk Profiles Guide. An example RoA for a simple rebalance and change in risk profile name can be found on cpal.com.au/saa-pis or on the PIS intranet. 6

7 Existing clients transition map This process map illustrates the steps required to transition your existing clients to the 2016 SAA and Risk Profiles. 7

8 In-progress clients In-progress clients are those clients who completed the RPQ prior to 1 March 2016, however recommendations have either not been presented or been presented but not yet been implemented. Option 2: Transition to the new SAA and Risk Profiles immediately You will need to ask your client to complete a new RPQ and then adjust the planned recommendations based on the new profile and SAA. You have the following options: Option 1: Continue with the existing recommendations You will need to follow the same process as you would for an existing client (see page 4) and ensure that they are transitioned to the 2016 SAA and Risk Profiles by 1 March

9 In-progress clients transition map This process map illustrates the steps required to transition your in-progress clients to the 2016 SAA and Risk Profiles. 9

10 New clients All new clients acquired from 1 March 2016 will need to adopt the 2016 SAA and Risk Profiles and therefore complete the new RPQ. However where clients have existing portfolios in place and it is not in their best interest to immediately transition to the new SAA, then a gradual shift of the portfolio can occur over the two year transition period and by 1 March 2018 (refer to section on existing clients) New clients transition map This process map illustrates the steps required to transition your new clients to the 2016 SAA and Risk Profiles. 10

11 Transition considerations Risk profiles and asset allocations form the foundation of good quality advice. Therefore it is important that this process is completed and documented correctly. These tips will assist in improving the quality of your advice file. Advisers should review and engage with their external providers (where applicable) as soon as possible to ensure model portfolios reflect the new risk profiles and SAAs. Centrepoint s preferred paraplanning providers have been informed of the changes, however it is important that advisers utilising other outsourced paraplanning providers notify them of the relevant changes. Where the advice involves a gearing strategy, advisers need to ensure that the risk profile remains compliant in relation to acceptable Loan to Value Ratios (LVRs). Where the Client Data Form (CDF) on file may not be accurate and up to date, the adviser may be required to complete a new CDF (as per standard review process). Advisers should always maintain comprehensive file notes. A sample 2016 SAA and Risk Profile client review letter available to assist you to engage with your clients and help explain what has changed. An example RoA has been developed to demonstrate the level of detail required. Your Professional Standards Consultant can also assist with any queries or alternatively you can professionalstandards@cpal.com.au 11

12 Financial planning software implications Understanding how the 2016 SAA and Risk Profiles will impact on various parts of your business, not just your clients, is critical. A key component is your financial planning software. We ll go through what the 2016 SAA and Risk Profiles mean for you as a Compass user, and provide guidance for those using other software providers to ensure you re ready for launch and remain compliant. Compass changes and implications The good news for Compass users is that most things are already taken care of for you. In preparation for the 2016 SAA and Risk Profiles launching on 1 March 2016, we ve updated the following: Statement of Advice Review report Record of Advice Risk profiles and underlying asset allocations Risk Profile Questionnaire (RPQ) Education guide So come 1 March 2016 there are a few things you ll need to be aware of: Compass will be updated from 12.00am 1 March 2016 and will be ready for business as usual that day. Only the 2016 SAA and Risk Profiles will be available in Compass. The former risk profiles and SAA will be decommissioned on 1 March 2016 and will be replaced by 2016 Risk Profiles (see table). Your clients details will be automatically updated to reflect the 2016 SAA and Risk Profiles. The 2016 Defensive Risk Profile is not matched to a former risk profile as there is no traditional Defensive risk profile from a defensive/growth split. Former risk profiles Corresponding 2016 Risk Profiles* - Defensive Defensive Moderately Defensive Balanced Growth High Growth Conservative Balanced Growth High Growth High Growth Plus *Based on growth/defensive splits and underlying asset allocations. Additional considerations 1. All Centrepoint Alliance Compass collateral will be coded according to the 2016 SAA and Risk Profiles. If you have coded your own documents in Compass, you ll need to update these or they will return errors. 2. You may provide your clients with monthly or quarterly reports. These reports may show asset allocation variances if your client has not yet transitioned to the 2016 SAA and Risk Profiles. A sample 2016 SAA and Risk Profile client review letter will be available to assist you in explaining these variances which will be available in Compass. 3. The RPQ will now be available as a stand-alone wizard and document. The RPQ will continue to be included in the Client Data Form (CDF). 12

13 4. Diversified Alternatives, although classified as both defensive and growth, have been allocated totally to the growth sector within Compass. Compass will therefore show a slight variance between the defensive and growth allocations compared to the 2016 SAA and Risk Profiles. The variance will be within the allowable +/-10% and will not change the overall SAA or risk profile of the client. The variance will appear in the SoA, RoA, Review Report and the IRESS Portfolio Services (IPS) module and wording to that effect has been added to the document. Non-Compass users guide In preparation of the 2016 SAA and Risk Profiles launching on 1 March 2016, you will need to update your financial planning software. To make this simple for you as a Non- Compass user, we ve provided you with instructions to ensure your financial planning software is up and running for the launch. We have contacted software providers including COIN, Midwinter and IRESS to ensure it is a seamless process. Taking action The risk profile descriptions and charts, and 2016 RPQ can be found on cpal.com.au/saapis or on the PIS intranet. Timing Contact your software provider as soon as possible to ensure your software is updated and ready for the launch of the 2016 Risk Profiles and SAA on the 1 March As detailed above, all new clients will need to be on the new SAA and RPQ. Contact details Here are the contact details of a number of software providers to help you start the process. Software provider COIN Midwinter Adviserlogic Preferred contact Roberta Nagle roberta.nagle@rubik.com.au Your Account Executive or Julian Plummer jplummer@midwinter.com.au Your Account Representative support@adviserlogic.com Contact your software provider. They will advise on your next steps, and you may be required to supply: The 2016 SAA data and Risk Profile information this can be found on cpal.com.au/saa-pis or on the Professional Investment Services intranet. IRESS Other Your Account Executive Your Relationship Manager Changes to advice documentation such as the SoA, RoA and education guide, including: o risk profile descriptions and charts o the new RPQ o other business documents you have created which may be impacted. 13

14 Further information For more information about what the 2016 SAA and Risk Profiles mean for you, your clients and your business, please visit cpal.com.au/saa-pis or the PIS intranet. Alternatively, for more specific queries: Transitioning your clients and compliance Professional Standards T: E: Technology and financial planning software Advice Technology Services T: E: 2016 SAA and Risk Profiles Research team E: 14