Advisers must keep up to date with these changes to mitigate risks, maximise returns and meet their client’s objectives.
But how can advisers achieve continued compliance within the changing regulatory landscape, the growing demand for ethical investments, and fluctuating market conditions?
These were some of the topics discussed at the recent FTAdviser Investment Masterclass held on June 4, sponsored by Carmignac and Sarasin, which examined how advisers can ensure they keep clients happy in a new era for investment portfolios.
New era of regulation
Speaking at the event, Mark Spiers, partner at Bovill, pointed out that regulation – specifically Mifid II – has promoted consumer protection by increasing transparency and fiduciary duties such as suitability.
Transparency means giving clients information so they can make informed decisions, while suitability boils down to “more technical client interactions and effective client profiling”, he said.
So understanding the purpose of questions posed to clients, on application forms or as part of suitability assessments, is crucial if advisers are to satisfy their clients.
For this reason, Mr Spiers suggested advisers use free-text boxes and/or meeting notes, as well as using all of the client information.
“We often see gaps in the information on files where basic know-your-client information has not been recorded or has been captured in a format that it is not meaningful,” he said.
Such gaps regularly include generic objectives, where the financial objective is merely income, alongside and ill-defined or conflicting time horizons.
Instead, he suggested objectives be specific and tailored to the individual client and that they clearly outline what the client is looking to achieve with their assets.
“The time horizon should be in line with the client’s financial objective and risk profile and the investment manager should review these in tandem to ensure they are consistent,” he said.
However, when it comes to risk profiling, advisers can get it wrong.
To get it right, Mr Spiers said advisers should use defined risk categories and agreed descriptions, visuals and graphics to illustrate volatility and/or portfolio make-up, and have separate consideration of capacity for loss and knowledge and experience.
Understand your starting point
To find opportunities for investments it helps to recognise cycles and trends and why investors make the decisions they make, noted Obe Ejikeme (pictured), global equity quantitative strategist at Carmignac, also speaking at the event.
“Understanding where your starting point is, is key,” said Mr Ejikeme.
“We are at such a key point in the cycle that if you get it wrong money is going to be lost,” he added.
