Financial planning practice

This audiovisual presentation looks at the information needed when completing application forms for financial products.

 

The implementation stage of the financial plan may involve other professionals, aside from the financial planner, such as solicitors, accountants or discretionary investment managers. Some tasks normally associated with the financial planner may be outsourced or delegated, to a paraplanner for example.

Where the planner has outsourced tasks to a third party, for example the investment management of an underlying portfolio to a discretionary investment manager, they should have first carried out in depth due diligence o...

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...uch as:

Investment markets moving significantly

Product terms changing following medical underwriting

Clients changing their mind

Legislation changing

A new product/service coming to the market (that may be more appropriate)

Products or services suddenly being withdrawn

Clients wanting to select or deselect options available on the policy.

These changes need to be relayed to the client and can be done by amending and reissuing the report or providing an addendum to the report outlining the changes.

Personalised illustrations for protection policies are issued to the client based on “standard terms” and do not take into account any medical or lifestyle issues they may have, other than whether or not they are a smoker. As such, the premium can often change once the underwriting process is complete and the provider has had a chance to consider these fact...

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...ten, insurance companies will agree to share the results of the same medical examination or tests, so that the client is not faced with attending several similar or identical appointments for each application. Once the underwriting process is complete, the planner and client can choose the provider offering the best terms, which can vary widely from company to company.

It is increasingly common now for financial planners to use platforms to buy and sell investments for their clients, given the advantages in investment choice, functionality and reporting that they offer. Platforms may, therefore, be the instrument of choice in implementing the investment, retirement and/or estate planning part of the agreed financial plan.

As discussed in earlier chapters, however, platforms will not always be appropriate for every client/circumstance and, where purchasing the same investment on platform involves higher costs these will need to be justified. Using a platform must be in the best interests of the client and cannot be used solely because it is more convenient for the planner.

A platform is not a financial product itself, but a means of accessing one or more products, investments or services in the same place through technology. On the surface, most platforms will offer broadly the same thing, i.e. the main product wrappers (ISAs, collective investments and pension accounts), a very large fund range, including the most popular retail funds, and certain key functionality such as consolidated valuations across product wrappers, portfolio rebalancing or capital gains tax reporting.

Under the surface, however, there  can be key differentials between them, for example availability of funds, pricing of tax wrappers or dealing charges, scope of services  such as discretionary investment management or specialist tax wrappers such as a SSAS.

How platforms work

At a basic level, a platform is an online service that allows investors to buy and sell investments online, across a range of different tax wrappers. Some platforms are designed for investors to buy investments directly themselves, while others are only available via a financial planner or intermediary.

Most platforms will hold information on investors and their investments, as well as providing a facility to buy and sell investments. The actual investments tend to be held through a custodian, although the custodian may be a subsidiary of the company operating the platform. The custodian ensures that a client’s investments are held separately or ‘ring-fenced’ from the assets of the platform itself, thus providing an extra layer of investor protection should the platform run into financial difficulty. Assessing the financial strength of any custodian involved will, therefore, form an important part of the due diligence when assessing a platform.

As well as providing the ability to make investment transactions for clients, a platform offers a number of other tools and services such as:

Portfolio analysis tools

Risk profiling and modelling tools

Bulk rebalancing (allowing the planner to rebalance multiple clients in the same model portfolio at the same time)

CGT and tax reporting tools

Comprehensive client valuations and transaction histories

Corporate platforms may also provide other services, such as financial education tools for employees

These additional services should allow planners to add value for clients and manage their portfolios more effectively. Whilst most platforms offer broadly the same tools and functionality, each has its own differentials and quirks which the planner will need to familiarise themselves with.

Platforms are web-based services, so functionality will depend on access to a fast and reliable internet connection. This presents a risk, however, where internet access is affected, for whatever reason (f...

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...nwrapped’ accounts as they do not offer any particular tax advantage. These accounts, in turn, can be held by another tax wrapper, which can be particularly useful where an off-platform tax wrapper would benefit from using a platform based investment strategy.

An example of this might be where it is beneficial to maintain an existing client’s (non platform) SIPP, perhaps due to the provider’s specialism in commercial property. At the same time, however, the client may wish to access a particular model portfolio or investment strategy with part of their pension fund that is only available on platform – in this instance the SIPP (technically the trustees of the SIPP) could then purchase a general investment account through a platform, which would provide them with access to the required investment strategy without having to transfer everything to a platform SIPP. However, not all general investment accounts are available as ‘standalone’ products that can be purchased via third parties.

To achieve the best results where third parties are involved, there should be as much integration as possible between the platform and the off-platform product. Ideally, the platform should be able to report data and valuations as efficiently as if the product were held directly on the platform itself. This is not always the case and it may even be the case, sometimes, that data has to be manually added to the platform, either by the platform provider or the financial planner.

Reporting

One of the major advantages of using a platform to implement a client’s financial plan is the ability to provide consolidated reporting across multiple tax wrappers. Rather than contacting multiple product providers for valuations or other information, some of which may not be provided for several days or even weeks, reporting information on platform holdings can be provided at the click of a button (as well as being based on the same valuation point across the board).

The types of reports available on a platform that are likely to be of use to the financial planner include:

Valuations

Asset allocation analysis

Performance reports

Transaction reports

Taxation reports – realised and unrealised gains

Withdrawal and contribution histories

Portfolio analysis – various tools may be available, for example portfolio ‘X-ray tools’

The above reports can usually be provided for each individual tax wrapper, as well as on a consolidated basis, for example an asset allocation analysis or valuation for a client’s SIPP alone, as well as for all of the tax wrappers combined. It should also be possible for planners to specify the timescale for each report, i.e. the last tax year or a custom date range. This is vital where planners are providing an ongoing review service at set intervals, for example, where a review is provided every six months, it must be possible for the planner to provide an analysis of the client’s investments over the specific six month period.

The format of these reports will vary from platform to platform and financial planners will differ on how they prefer to use them – some will provide the platform generated report directly to the client, whilst others will take the information and incorporate into their own report or review document. Some platform data can also be integrated directly to the planner’s back office system, helping to populate reports generated by the system itself.

Implementing the financial plan is the cu...

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...h we will now cover in the final chapter.

This revision test (opens in a new window) ...

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...test will be added to your CPD certificate.