Having said that, the best thing about this event is the chance to meet other paraplanners from all sorts of backgrounds, share experiences and make lasting contacts. I’m going and it would be good to see and meet as many of you as possible.

If you are going please add a comment below and we can say hello.  Full details are available here.

I never planned to be a paraplanner.

But having outgrown my previous job role of admin person / office manager / sometimes-paraplanner in a small but successful financial planning practice, I was excited as I started work with Richard three weeks ago to finally be able to call myself a ‘proper’ paraplanner.

I was also interested to see what life would be like “on the other side of the fence”, as Richard puts it.  I was used to the client facing environment; familiar with the majority of my practice’s clients, having spoken to them on the telephone, greeted them at the office, written them letters, slaved over their reports, and had a hand in their financial strategies.

Week one was a whirlwind of information. New systems, processes, research tools, report styles.

Week two, things fell into place somewhat, and I felt confident about starting to write my own reports rather than just do the preparation as I had the first week.

Now in the middle of week three, I feel my feet have barely touched the ground since Monday, and the volume of work I’m getting through is astonishing me!

It has suddenly fallen into place for me just how much sense outsourced paraplanning makes.  In my previous job; a small practice, as mentioned earlier, a client report could take us a week to complete.  I would have a number of cases on the go at once, all with totally different objectives, requirements, and recommendations, and each would need a different sort of research process, a bespoke recommendation, and a carefully crafted personal report. The process took hours and hours, not just of my time, but of the adviser’s, who wanted to scrutinise every step of the process; every word of the report.

On “the other side of the fence”, though, the process is much more efficient, streamlined and slick.

This doesn’t for a moment mean that our reports aren’t personalised. Providing our IFA provides a reasonable summary of their client’s personal situation and objectives, each case is worked around the individual scenario.

However, it’s considerably more efficient to write, say, ten reports recommending a risk-appropriate portfolio of mutual funds held via a wrap, than it is to write just one, even if each client’s attitude to risk is slightly different, appropriate wrap provider is different, and portfolio of funds is different. Our technical knowledge is up to date, the software and research processes are familiar, and while the reports are worked around what the adviser wants to provide to their client, the basic structure of each report is similar.  Hey presto, many more reports can be written in the time it originally took me to write one or two!

Do I think, though, that the individual financial planning practices are losing that personal touch in their reports; that by going through a process, their clients are somehow losing out?

Quite the opposite; I feel that if providing a robust and repeatable process is one of the fundamental principles of TCF, then putting each client through a paraplanning process carried out by a paraplanning specialist, rather than  an overstretched adviser or administrator who hasn’t used such-a-piece of software for a month, is a great leap towards this.

And the amount of adviser time that is freed up by the outsourcing of the paraplanning can be used to focus on more face-to-face client projects, which, as numerous studies will tell us, is what the clients value most.

It sounds like a win-win to me.

Now in its fourth year, the Paraplanner of the Year award is the original UK Paraplanner Award and is firmly established as the premier award for all Paraplanners in the UK.

Whether you are an in house paraplanner or an outsourced paraplanner, whether you have been in the industry for only a short time or for many years, this is the award you should enter. The dedicated site is up and running www.ppoty.co.uk and you can enter NOW!

Based on a Paraplanners core skills the award provides a platform for all Paraplanners to demonstrate their excellence.

Entrants will be required to answer a number of technical questions and provide an example of their written work. These will then be supported by a personal reference from either an employer or client.

There are two awards this year. The overall winner will receive

Registration for the Institute of Financial Planning Annual Conference, 3 to 5 October 2011.

• Hotel accommodation for the nights of 3 and 4 October 2011.
• A cash prize of £1,000.
• The Paraplanner of the Year Trophy.
• Access to Wizard Learning’s structured CPD system for 12 months plus
  online exam support for 3 years

In addition, this year there is also a Special Technical Award, awarded to the entrant with the highest score on the technical assessment. He or she will receive an iPad 2 plus £1,000 of online training credits from Wizard Learning to be used by the winner or others in the winning firm over the next 2 years.

The Awards are sponsored by lead sponsor AXA Wealth and supported by Para Plan Plus, Moneyscope and Paragon Paraplanning with the technical assessment provided by Wizard Learning.

The winners will be announced and the awards presented at the IFP conference

“25 Years of the IFP” on 3 – 5 October.

If you think you have what it takes and would like to enter then further information about the awards and entry forms are available at

www.ppoty.co.uk

Good Luck!

The recent lively debate surrounding the launch of the controversial Money Advice Service (MAS) has sparked an interesting question: will it help or hinder IFAs?

The MAS Chairman Gerard Lemos has gone on record saying that the service will drive demand for advisers and their services, but many advisers are clearly skeptical. Blogs abound with disgruntled advisers commenting on the supposedly “free” advice service, paid for by a statutory industry levy.

There may well exist a group of consumers who do find themselves unable to afford ‘post-RDR’ advice from an Independent Financial Adviser, and the MAS might prove to be a welcome alternative to seeking advice from a bank. However, I believe that the recently felt concerns of the broader IFA community about the service are not only valid, but also thought provoking.

The MAS Chief Executive Tony Hobman recently stated “we are never going to recommend a specific product to someone because we are giving unregulated advice.” He goes on to say that “we will talk generically about types of advice…but not in a way that recommends one specific product.” So, it would seem, the MAS is not going to be offering any advice at all. Nothing for IFAs to worry about then, after all? Maybe.

It would seem that the launch of the MAS has sharpened many advisers’ focus on ensuring that their clients understand and appreciate the advice that they are paying for. Whether the MAS is providing ‘free advice’ or not, IFAs undoubtedly still face an uphill struggle to convince some potential (ands existing) consumers that advice is not, and should not, be free. In the post-RDR world how advisers get paid, and for what, will suddenly be in very sharp focus. Many adviser firms we speak to have embraced the ‘New Model’ advice proposition and are flourishing, but many have not. Proving your worth to your clients is going to become key to a successful and profitable business in the future.

So, how can advisers do this? One way is to look at your business and determine which areas can be streamlined. Maximising time with existing clients, gaining referrals, and cultivating new relationships is likely to be top priority for most. Minimising time spent on report writing, research and desk-based activity is likely to be the sole method of making this a reality. By outsourcing your report writing and research, you free up time to spend with clients, at the sharp end of the advice process. For a fixed fee, you can outsource this time consuming but vital part of the advice process to professional paraplanners, removing the cost of employing someone in-house. Our research shows that the cost of outsourcing your research and report writing usually equates to, on average, 10-30% of the initial adviser fee charged by advisers on pension and investment cases. If this saves you 5 or 6 hours of work, how many clients can you see in that time, each week? How profitable can your business become? And how much more will your clients value your service?

The recent fines over UCIS fund selection, and the FSA’s warnings on the over reliance of adviser firms on risk assessment and asset allocation tools, are a timely reminder that risk assessment and asset allocation are just two stages in a much wider portfolio construction process.

I therefore thought it would be good to look at some (not all) of the key issues paraplanners and advisers should consider when constructing investment portfolios.

1.     Asset allocation and Risk Assessment Tools

Before using any tool it is important that you have an understanding of how the inputs are calculated, the theory behind these and whether the company supplying the tool has influenced the data in any way.  Discuss with the provider these points and record them for your research process; a good understanding will result in a better application of the results.

2.     FSCS, Custodian and Auditing

Client exposure to operational risk is an understated and forgotten part of the investment process (Equitable Life, Zero’s, Key Data, Arch Cru, Madoff et al are timely reminders).

Operational risk can be reduced by conducting due diligence on the funds and providers you wish to use; consider checking who audits the fund/provider and ask what the auditors latest findings are, even better if you can have a copy of this as well.

If possible, understand a firm’s custodian arrangements and how this would operate if the business were to fail, and check whether the underlying investment vehicle has FSCS protection.  In general, internal custodian arrangements could be slow to distribute capital and the FSCS is likely to repay the client’s money quickly relative to a product or company being wound up; this is could be important for those clients who may need income from their assets or who have limited resources.

3.     Knowledge and Experience

An individual’s perception of risk can change when they actually experience the living reality of their stated attitude to risk and how it affects their lives currently and potentially in the future (market crashes can become distant memories/bring out hidden fears).

Do not rely only on a risk assessment tool; discuss with clients their investment experience and knowledge and whether they are averse to capital losses and what impact this loss may have on their lives.  Try to align their risk into context of the assets they hold and future objectives.

4.     Discretionary Funds Mangers

If you outsource investment management your responsibility to the client does not end at the DFM’s selection.  It is important that you monitor the DFM portfolio and the investment team.

The FSA consistently mention the term ‘on-going monitoring’, consider building a quarterly questionnaire which you send to the DFM requesting up to date portfolio performance data and ask about the team who manage the portfolio.  Consider asking if key members of the team have left, if they have experienced large fund withdrawals or high portfolio turnover rates relative to benchmark returns or whether the portfolio has deviated from its constraints or standard deviation range.

The DFM responses allied with the portfolio statistical data will be your early warning system and also highlights to clients the on-going service you provide.

5.     Passive Funds Selection

Passive fund return can be affected by the underlying stock lending strategies they adopt or the replication process used.  Passive Funds ideally should have a tracking error below 2% or a low total expense ratio.  Some funds can track smaller indices or markets and so assess them against the index not their IMA peer group.

6.     Number of Portfolio Holdings

Research from Morningstar indicates that holding between 7 to 10 funds in a portfolio will reduce overall Standard Deviation; after 10 funds the risk variation tends to level out.

7.     Risk Assessment

Markovitz is saluted for mathematically proving that you shouldn’t put all your eggs in one basket but it is important to consider other risk measurements in addition to standard deviation, consider looking at investment fund drawdown, tracking error or debt to equity ratios.

Drawdown is a good measure as it is a known factual event.

8.     Fund Size

A passive fund with a large AUM is potentially better protected from large redemptions, a small passive ETF of £100m or less could close if unpopular and is unlikely to be unprofitable for its provider.

A large active fund can become sluggish from asset bloat, turn into an expensive tracker or find it hard to sell large stock holdings into the markets.

9.     Firm AUM

Think about managing your own company portfolio risk.

How much exposure does your whole practice have to specific funds or providers?

Make sure your firm is not over exposed and manage your in-house investment book.  Don’t get over exposed; maximum IFA practice exposure of c7% to c10% of total firm client assets in one fund or provider is a good maximum business level.  For those funds and companies your practice has high exposure in develop a close relationship with them and make sure you meet regularly, maybe even get yourself a golf day if you have £1m or more.

10.  Alternatives/UCIS

Constrain your asset allocation to reduce risk.  UCIS or specialist/alternative investments are not for all investors and can carry huge structural risk in addition to normal investment risk.  I prefer less than 10% in specialist or alternatives within a portfolio and only for balanced investors and above.  Possibly consider building portfolio construction guidelines so that elderly clients investing for income do not end up with a high allocation to risky investments.

Be careful when building model portfolios as low risk investors can end up unintentionally exposed to specialist funds.

UCIS funds fall into 2 categories; they are either a specialist investment opportunity or a tax planning strategy.  The category they fall into will determine the type of structural and investment risks a client faces.

11.  Investment Trusts

Spice up your active portfolio positions and consider investment trusts, get training on how to select these investments and play the discount in poor markets possibly moving into their unit trust brother when markets return to value or trusts move to a premium.  Investment return does not have to be all about markets; try and use arbitrage strategies or product structures to make gains.

…….and finally, the elephant in the room:

12.  Charges

Charges are one of the most consistent factors applying to a portfolio; try to keep costs down if possible.  High charges allied with tax and inflation reduce client and adviser practice returns, poor performance for a high portfolio turn-over must be questioned.

Funds with dual pricing could charge more at entry.

A Final Thought

Client investing isn’t about short term capital gains; it’s about the systematic accumulation of capital over the long term.  Try to control the things you can such as operational risk, charges and tax, and let the asset allocation model and the theory driving it deal with the markets.

Whatever your process, be it a computerised tool or the application of years of wizened financial planning knowledge, it is ultimately how you apply the results that matter; the best approach I feel is a combination of knowledge and computerised modelling allied to a consistent and disciplined investment process to achieve the best results for paraplanners, advisers and ultimately the clients.

The next couple of years will be particularly interesting. If the (admittedly vague and fluctuating!) stats are true, hundreds, if not thousands, of IFAs will leave the industry by the end of next year. The safe money would be that the IFAs remaining are the forward thinking ones who have embraced the RDR and, as a parallel, paraplanning, whether internal or external. Hopefully, more new entrants will come into the market and the new wave of advisers will learn the ropes which automatically include the paraplanning role, to the point where they can’t imagine such a role never existed!

So, the role will grow and become more and more important, just as some of us have be harking on about for a number of years! The exciting thing will be to see what happens to the outsourced paraplanning firms as this happens. Will there simply be more small firms springing up? Will large firms appear that will team up with networks? Will networks or large IFAs simply develop their own internal paraplanning proposition, along the same lines of an outsourced offering, but without the cost savings?

The exciting thing about the paraplanning industry is that it is so new and fresh, and has therefore developed in the technology era, meaning that changes can, and do, happen extremely quickly. Sometimes, we are looking at what trends may occur in the next six months, rather than over the next 10 years which would have been the typical benchmark in slower moving industries.

It will be interesting, to say the least, to see what happens over the coming years. In the meantime, initiatives such as the Paraplanner Directory are fantastic for the industry as they simplify the process, encouraging more IFAs to give it a try. As for what’s coming next, let’s all watch this space….

This is a guest post by Cathi Harrison of Para-Sols Paraplanning Solutions.

Lawson and Equilibrium’s two other advisers are well supported, each assigned a team of five paraplanners who sit in on all client meetings.

It is an unusual structure but the use of paraplanners will increase as the retail distribution review approaches. Advisers are going to have to become more efficient, whether that means having people in-house or outsourcing. I believe using paraplanners is the best route for the industry but first the gap between adviser and paraplanner pay needs to narrow.

At Equilibrium, the paraplanners are the most qualified employees, although Lawson says this will change after the RDR.

It’s the first time an IFA or financial planner can go to one site and see a listing of freelance and outsourced paraplanners (and administrators), review detailed information about them and make contact with as many as they want with a single click.

It’s a simple idea but I think it will work.  The profile of parapalanners has grown rapidly in recent years and this is another step forward in meeting the demand for our services.

An integral part of this high quality work will be the production of reports for clients.  In many practices this type of work will be the domain of the paraplanner (though this is not all they will do) and clearly the more complicated and comprehensive the report the more qualified and experienced the paraplanner needed to complete it. This can cause concern for IFAs because it is not always economically viable to employ a paraplanner of this standard full time.

A solution which more and more IFAs are using is outsourcing some or all of their paraplanning requirements. This is where the report writing function, and indeed some of the other paraplanning functions, may be outsourced to a company who specialise in this type of work.

Outsourced paraplanning is not new in the UK as some companies (in particular The Timebank and Paraplan Plus) have been working with IFAs since 2002.  Some benefits of outsourcing are:

• The ability to spend more time with your clients knowing that your reports are being written for you.
• Knowing that your reports will be to a very high standard.
• Knowing that you will receive your reports to a deadline and on time.

All of the above are vitally important when considering the TCF requirements.  There are also further benefits of outsourcing:

• The ability to pay for what you need – when you employ a paraplanner the cost is constant and though it may be advantageous to have a known cost it is not very flexible. One of the benefits of outsourcing is that you can use the paraplanner as much or as little as required (within reason).
• The ability to discuss a client case with an experienced and knowledgeable individual – having another, or possibly another two or three other highly experienced people to discuss ideas and to help create a strategy for a client is a major benefit for a small business.

Outsourced paraplanning is now a real option for IFAs and it is not just about deciding whether or not outsourcing is right for you, you are now able to select the most appropriate company for your needs as they are not all the same.

If outsourcing is something you are considering you may like to think about the following:

1. How are you going to pay for the work? Is this going to be on an hourly basis or on a case by case basis?
2. How much work are you going to give the outsourced company? Some companies require a retainer; others just work on an ad hoc basis.
3. What type of work are you going to give to the outsourced company? This is important because you need to ensure that the outsourced company are able to deal with the work you give them. If it is highly complex and technical work that requires a high degree of technical ability then you will need to make sure that the person doing the work has the appropriate skills to be able to undertake that work.
4. If you are a Financial Planner and you wish to outsource some of your report writing work you would need to ensure that the outsourced company understands the difference between a Full Financial Plan and a suitability report. Better still check whether they are CFP qualified.
5. Don’t underestimate the length of time it takes to write a comprehensive report. Too many advisers still believe that a full, comprehensive, high quality report can be written in about four hours – It can’t!!!

These are just a few of the considerations you may have, there may be others but if you decide to outsource your paraplanning work there is now plenty of choice so you should be able to find the right company for you.

This is an article first published on The Paraplanner by Martin Vaughan of Paragon Paraplanning.