F&C Centralised Investment Propositions G10\MMF Roadshow template.ppt
Agenda RDR headlines Opportunity to reshape business FSA paper Replacement business and centralised investment propositions F&C Lifestyle funds Risk-targeted solution 1
Headlines on RDR 2
Out there already. You were sold an investment without having been properly advised of the risks - Attitude to risk and portfolio risk You were advised to invest all or most of your savings into a single investment - Diversification Source: Sunday Times 16 th September 2012 3
FSA Papers Policy Statements, Guidance and Finalised FSA Ref FSA Paper title Date FG11/05 Assessing suitability Establishing the risk a customer is willing and able to take and making a suitable investment selection Mar 2011 PS 12/13 Distribution of retail investments RDR adviser charging treatment of legacy assets Feb 2012 FG 12/04 Distributor influenced funds Feb 2012 FG 12/15 Independent and restricted advice Jun 2012 FG 12/16 Assessing suitability : Replacement business and centralised investment propositions (CIP) July 2012 Jul 2012 2.2 For this report, we (FSA) use the term CIP to reflect a standardised approach to providing investment advice. 4
PWC survey of IFA readiness for RDR Undecided on approach towards post 2012 25% 50% 25% Have not determined their post- 2012 approach Currently evaluating various options including possible exit of the industry, dis-investure of parts of the value chain and/or outsourcing Compliance-driven approach View RDR primarily from the point of regulatory compliance Have not determined their post- 2012 strategy, client proposition and commercial model Strategic/transformation approach View RDR more as a competitive opportunity rather than just as a compliance initiative Have adopted a strategic, business-wide approach to RDR and have determined their post-2012 strategy and commercial model Likely to take a more compliance-driven approach as the December 2012 timeline draws closer Current RDR activity is limited to determining independent vs. restricted status and getting advisors qualified to Level 4 Have not evaluated impact of post-2012 adviser charging on current revenue streams Focused on developing post- 2012 client-centric value propositions underpinned by rigorous client testing Looking at value chain opportunities and partnerships and are now moving into design of post-2012 operating model Source: PWC survey 2012 5
RDR Key decisions RDR model Are you going to be independent or/and restricted What is your advice focus post-rdr? How are you going to charge your client? How do you service different types of clients? Business Model How to ensure client buy in? Clearly defining your value proposition? Advice Proposition Investment Proposition Service Proposition 6
Putting advisers where time is valued Where advisers spend their time What clients value Adviser Charging Financial data gathering Data analysis Plan prep Implement and admin Product advice Present plan Review and ongoing service Relationship management Source: Cerulli Associates FPA Principal Member Survey 2001 7
Re aligning time/cost to value Average time to complete a savings/ investment advised transaction Travel Post decision administration Presentation of recommendations 65% time Preparation of recommendations Initial meeting Pre-initial meeting Source: ABI Research Paper No 22 2010 Charles River Associates, for the average advisor 8
The FSA comment on CIPs The FSA comment on CIPs We (FSA) believe there are benefits from CIPs for both clients and firms. Clients can benefit from more structured and better researched investments. Firms can benefit from efficiencies in the management of risks associated with investment selection. However, we (FSA) are concerned that, in certain circumstances, CIPs are unsuitable for retail investors. * Retail Conduct Risk Outlook 2012 3.8.2 Centralised Investment propositions (portfolio advice services, discretionary portfolio management and Distributor Influenced funds (emerging risk) 9
Assessing suitability : Replacement business and centralised investment propositions July 2012 Key words and phrases from the paper Demonstrate how, why and when Easily understood Good outcomes for clients, that are value for money Robust Process Repeatable 10
FSA finalised guidance July 2012 Replacement Business 1.4 All firms providing investment advice should ensure that they have robust processes and controls when recommending replacing an existing investment 3.1 This chapter (replacement business) is relevant to all firms providing investment advice to clients and is not specific to firms that provide CIPs Key areas of considerations Cost Performance Tax position Client needs & objectives Clients attitude to risk Existing product features Demonstrating that advice has been through a robust and repeatable process Source FG 12/16 - Assessing Suitability : Replacement business and centralised investment propositions July 2012 11
Replacement business Key findings on cost Impact and suitability of additional charges of replacement business Cost and features of existing investment Quantify the additional charges of new investment Failed to provide cost comparisons of existing and new recommendation in a way the client was likely to understand Example of poor practice Offered a CIP via discretionary service, but its replacement business cost comparison did not assess the overall impact of all the charges of the new investment.. It did not pay due regard to the typical overall volume of trades that may be expected within each portfolio, and hence what the typical overall costs would be. Source FG 12/16 - Assessing Suitability : Replacement business and centralised investment propositions July 2012 12
Centralised investment proposition (CIP) 4. Centralised investment proposition Key issues 1. Consider the needs and objectives of their target clients when designing and adopting a CIP 2. Consider whether the CIP is suitable for each client on an individual basis Shoe horning 3. Establish a robust control system to mitigate risks which might arise from the CIP Source FG 12/16 - Assessing Suitability : Replacement business and centralised investment propositions July 2012 13
Design of the CIP 4.2 the needs and objectives of a firm s target clients should be at the heart of the decision to offer a CIP Examples of good practice Firms used the feedback from its clients to design and implement CIP. Simple, low cost CIP. Client facing staff provided guidance on the client s typical needs and objectives. Formulated list of key client requirements. Example of poor practice Firms inheriting CIP, failed to establish whether the CIP was suitable for needs and objectives of their new, larger client bank. Source FG 12/16 - Assessing Suitability : Replacement business and centralised investment propositions July 2012 14
Considering segmentation & service models 4.4 Where a firm has a diverse client bank, it may wish to consider segmenting its clients. This involves offering a range of CIP solutions to meet the needs and objectives of different client segments. This is in firms interests, as well as clients, as it is likely to increase the number of clients for whom a CIP solution is suitable. 4.5 Where a firm segments its client bank, it may offer different service levels and features to suit clients with different requirements. Where service levels differ, firms should inform clients of the services and their costs in a way that is fair, clear and not misleading. Example of good practice Segmented client bank and designed appropriate solutions to cater for each segment Source FG 12/16 - Assessing Suitability : Replacement business and centralised investment propositions July 2012 15
Suitability at outset & for the duration 4.11 When designing a CIP, firms may create different portfolios of assets to cater for different client risk profiles. Where a firm creates or uses riskrated portfolios as part of its CIP, it must ensure the portfolios align accurately with the risk descriptions and outputs from any risk profiling tool it employs Source FG 12/16 - Assessing Suitability : Replacement business and centralised investment propositions July 2012 Asset Allocation Distribution Technology 01.09.12 16
Portfolio drift 4.12 Where a firm uses an asset-allocation approach in constructing portfolios 26, it should ensure that it has a robust process to review each portfolio to mitigate the risk of the portfolio drift 27. Where portfolio drift occurs, there is a danger the risk profile of the client and the risk profile of the portfolio will move out of alignment Resource Rebalancing Switching Example of poor practice Firm offered an asset allocation process within its CIP; however neither offered an annual review to rebalance the assets nor did it explain the importance of rebalancing to its clients. Source FG 12/16 - Assessing Suitability : Replacement business and centralised investment propositions July 2012 26 and the recommendation does not have an in-built mechanism to rebalance the asset allocation 27 Over time, the balance of assets in a portfolio is likely to move away from the asset allocation recommended due to different assets providing a different return. This can be mitigated by periodically rebalancing a portfolio. 17
Centralised investment proposition choices Multi-manager Single fund selections Model portfolios Risk-targeted portfolios Risk-rated portfolios Discretionary model funds Discretionary fund management Own choice Semi - outsourced Outsourced Structural resource Investment solution Outsourced In house In-house/outsourced Active/passive/blend Asset allocation Risk-targeted Risk-rated In-house model External models Platform/wrap/direct business ATR tool Research tools Back office / front office Investment committee Financial advisor Para planners Administrators Asset allocation changes Switching/rebalancing Performance analysis 18
Client proposition Client proposition Client S=segment No. of clients Adviser charge of AUM or fee, price per job Time budget Segmentation criteria Investment proposition Service & advice propositions A B 1% - 2% + 1%/ 125pm 2% - 3% + 0.75%/ 75pm 20 hrs 5 hrs Current assets, Annual income, Total assets, Referrals potential, Profitability of relationship, Growth potential, Ease of working relationship, Length of relationship Bespoke: DFM bespoke portfolios, In house managed portfolios, Risk-rated Multimanager, Model portfolios Outsourced: Risk-targeted Multimanager, Risk-rated Multimanager, DFM model portfolios, Bespoke financial service: Access to directors Full financial planning team 6 monthly review meetings Valuations Online portfolio access Fund alerts E-mail updates Newsletters Additional services Free phone number Full financial planning: Access to financial planning team Annual review meeting Valuations Online portfolio access Fund alerts E-mail updates Newsletters Transactional - Price per task required Menu On request Reactive: Risk-targeted model portfolios, Bespoke arrangements Transactional, basic advice: Valuation statement Online portfolio access Newsletter 19
Conclusion RDR risk or opportunity Reshape business model what do you want your business to be? FSA paper replacement business and centralised investment propositions What are the key themes? Robust, repeatable, demonstrate, process, outcomes Commercial, profitable business set for 2013 and beyond 20
F&C Lifestyle - A risk-targeted fund range Robust, repeatable, process, consistent outcomes 4 Risk-targeted fund of funds solutions Asset allocation determined by sophisticated analysis Blend of asset allocation strategic and tactical Volatility parameters 5 year track record Fund rebalancing and switching Flexibility of investment Actively managed Fund selection whole of market Active and passive funds Underlying fund manager expertise Aligned to client s risk at outset and for duration An aligned investment journey 21
Contact United Kingdom F&C Management Limited Exchange House Primrose Street London EC2A 2NY Tel: +44 (0) 20 7628 8000 Fax: +44 (0) 20 7770 5487 Website: www.fandc.com Authorised and regulated in the UK by the Financial Services Authority United Kingdom F&C Management Limited 80 George Street Edinburgh EH2 3BU Scotland Tel: +44 (0) 20 7628 8000 Authorised and regulated in the UK by the Financial Services Authority. United Kingdom F&C REIT Property Asset Management Plc 5 Wigmore Street London W1U 1PB Tel: +44 (0) 20 7499 2244 F&C REIT Property Asset Management Plc is a wholly owned subsidiary of F&C REIT Asset Management LLP and is authorised and regulated by the Financial Services Authority. United Kingdom Thames River Capital LLP Exchange House Primrose Street London EC2A 2NY Tel: +44 (0) 20 7628 8000 Fax: +44 (0) 20 7770 5487 The Funds business of the F&C Group. Authorised and regulated in the UK by the Financial Services Authority. Netherlands F&C Netherlands B.V. Jachthavenweg 109 e 1081 KM Amsterdam Netherlands Tel: +31 (0) 20 582 3000 Regulated in the Netherlands by the Autoriteit-FM. Portugal F&C Portugal, Gestão de Patrimónios, S.A. Rua de Campolide,372 1st floor 1070-040 Lisboa Portugal Tel: +351 (0) 21 003 3200 Regulated in Portugal by the CMVM and the Bank of Portugal. Germany F&C Management Limited Oeder Weg 113 60318 Frankfurt Germany Tel: +49 (0) 69 597 99 080 Authorised and regulated in the UK by the Financial Services Authority Ireland F&C Ireland Limited Block 5 Harcourt Centre Harcourt Road Dublin 2 Tel: +353 (0) 1 436 4000 F&C Ireland is regulated by the Central Bank of Ireland United States F&C Management Limited 265 Franklin Street 16th Floor Boston MA 02110 USA Tel: +1 (0) 617 426 9050 Authorised and regulated in the UK by the Financial Services Authority Hong Kong F&C Management Limited 66th Floor, Suite 01 The Center 99 Queen s Road Central Hong Kong Tel: +852 3965 3160 Authorised and regulated in the UK by the Financial Services Authority. India Indiareit Fund Advisors Pvt. Limited Piramal Tower, Ground Floor Peninsula Corporate Park G.K. Marg, Lower Parel Mumbai 400 013 India Tel: +91 (0) 22 61513440 Indiareit Fund Adivsors Pvt. Limited is a strategic partner to F&C REIT Property Asset Management LLP. Part of the F&C Asset Management Plc Group Germany F&C REIT Property Asset Management GmbH & Co. KG Oberanger 34-36 80331 München Germany Tel: +49 (0) 89 61 46 51 0 F&C REIT Property Asset Management Plc is a wholly owned subsidiary of F&C REIT Asset Management LLP and is authorised and regulated by the Financial Services Authority. Past performance should not be seen as an indication of future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. The information, opinions estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time. F&C Group Companies may from time to time deal in investments mentioned herein on behalf of their clients. The source of information in all graphs is F&C unless otherwise stated. F&C Management Limited is authorised and regulated by the Financial Services Authority (FSA) FRN:119230. Limited by shares. Registered in England and Wales, No. 517895. Registered address and Head Office: Exchange House, Primrose Street, London, EC2A 2NY, United Kingdom. F&C Asset Management plc is the listed holding company of the F&C group. F&C Management Limited is a member of the F&C Group of companies and a subsidiary of F&C Asset Management plc. F&C, the F&C logo, REO and the reo logo are registered trade marks of F&C Asset Management plc. F&C INVESTMENTS and the F&C INVESTMENTS logo are trade marks of F&C Management Limited. Copyright F&C Management Limited 2012. All Rights Reserved. Neither this document nor any part of it may be reproduced by any party whether by photocopying or storing in any medium by electronic means or otherwise without the prior approval of F&C Management Limited. CN: CM00672 22