Download Due Diligence - Risk Profiling Tool

This document represents a template for firms to consider and update to reflect their
investment processes and philosophy. Information contained within this document is for
guidance only and may not represent your own firm’s views or activities. In all instances
firms must personalise the document and consider the relevance of the due diligence
questions and whether additional research is required to support your own due diligence.
Please delete the whole of this first page when creating your document – it is for
information purposes only.
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NAME OF FIRM
Logo of the firm
Research and Due Diligence
Latest review and update:
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Contents
Background to the Business ......................................................................... 4
1.1 Scope of Service ............................................................................. 4
1.2 Our Investment Proposition .............................................................. 6
Annex 1: Due Diligence - Risk Profiling Tool ................................................. 10
Annex 2: Due Diligence – Multi-Manager of a Risk Targeted Fund ................... 12
Annex 3: Research & Due Diligence - Discretionary Fund Manager .................. 14
Research ........................................................................................... 14
Due Diligence..................................................................................... 15
Annex 4: Due Diligence - Model Portfolios .................................................... 17
Annex 5: Due Diligence – Research Tools .................................................... 19
Annex 6: Due Diligence – Platform Provider ................................................. 21
Annex 7: Due Diligence – Investment Solutions Support ............................... 24
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Background to the Business
1.1 Scope of Service
Independent Advice Model
We operate an independent advice model. This ensures we deliver a service that
can best suit the needs of any existing and new clients of the firm.
Our service offering includes all areas of the market to reflect the client needs.
These can include;
 (e.g. investment planning)
 (e.g. retirement planning)
 (e.g. protection planning)
OR
Our service is focused on specific areas within the market and our relevant
market is limited to;
 (e.g. Ethical investing)
 (e.g. the retirement market only)
 (e.g. Discretionary Management services)
Restricted Advice Model
We operate a restricted advice model. Our restriction focuses on the limited
services / products as follows;



(e.g. fund restrictions)
(e.g. product restrictions)
(e.g. provider restrictions)
The reason for operating this model is as follows;


To offer a select group of funds / products that are monitored and
reviewed regularly to provide our clients the best possible opportunity to
meet and exceed their financial objectives
To analyse existing and new products against the asset allocation of the
risk level chosen by the client as well as the client’s performance
expectations
Activities
The services delivered by the firm are apportioned as follows;
 Advice and arrangement – XX%
 Advice only – XX%
 Arrangement only – XX%
We operate the following service(s) internally;
 Discretionary Management Services
 Model Portfolio Services (non-discretionary)
 Distributor Influenced Funds
 Other (e.g. XX)
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Details of the internal services offered including how and when they are
reviewed is recorded within the Investment Proposition section of this document.
Outsourced Services we utilise
Outsourcing gives us, as a firm, the opportunity to perform well in our core
competencies as well as offer expertise in areas that we cannot provide
ourselves so that you, the client, receive the best possible service.
The services that we outsource include;
 Discretionary Fund Management
 Risk Profiling
 Management of back office systems
 Fund research
 Asset allocation
 Training
 Investment Administration
 Investment advice
 Marketing
 Paraplanning
 Modelling
 Report Writing
 Other (e.g. XX)
Platforms we utilise to maintain our clients investment solutions
Platform adoption decisions are made with the knowledge that each client is
different and may or may not suit a platform solution as part of a client’s
recommendation package. However, when we do recommend their suitability,
we use the following platform providers;
 Verbatim Product Centre
 Cofunds
 AXA Elevate
 Aviva
 Prudential
 Zurich
 Canada Life
 Other (e.g. XX)
Target Market
We do not have a specific type of client that we target or service. The number of
existing clients has built up over the years from the general acquisition of new
clients, mainly from word of mouth. Our business model is to service existing
clients and new client referrals only. We consider ourselves general financial
practitioners.
OR
We target all types of clients and are willing to review their current
circumstances, financial goals and aspirations as part of our service offering. We
consider ourselves independent financial advisers. We source our target market
through the following methods;
 Existing client referrals
 Website / Telephone book
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

Campaigns
Other (e.g. XX)
OR
We target clients on the basis of their net financial worth. We only deal with high
net worth individuals that wish to establish a long term financial relationship.
Our clients are targeted by the following methods:
 Existing client referrals
 Professional connections
 Marketing in trade / business publications
 Seminars
 Website advertising
 Other (e.g. XX)
OR
ENTER YOUR OWN BUSINESS DEFINITION
1.2 Our Investment Proposition
Understanding the Relevant Market
As an independent Firm, all our advisers regularly review the market to ensure
that they are aware of all the latest developments and products that are
available. Our advisers understand and identify the relevant market before any
activity is carried out to provide a personalised service to the client. All advisers
provide updates to all other advisers within the Firm based on the outcome of
their research so that our clients receive a consistent and suitable service,
regardless of which adviser they might be reviewed by.
OR
As a restricted Firm, our investment proposition is reviewed annually by the Firm
to ensure it remains the most appropriate and consistent for delivering suitable
services to our clients. This also includes regular training for our advisers on the
products and services offered within the parameters of our investment
proposition.
OR
ENTER YOUR OWN BUSINESS DEFINITION
Understanding Client Needs
We carry out an initial discussion with all (potential) clients to determine if our
service is relevant to their circumstances. Once both parties have agreed to
proceed, the following exercise is conducted;

Completion of a comprehensive fact-find document - this ensures we
understand the client’s full needs and circumstances, with hard and soft
facts being recorded. A standard data capture document is completed for
every client and updated throughout the on-going relationship
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
Discussion and agreement about attitude to risk - this discussion follows a
repeatable process for all clients and is carried out for each financial
objective and as part of each annual review. The process is supported by
a Risk Profiling tool to ensure consistency in this process. The tool the
Firm adopts is;
NAME (e.g. Dynamic Planner™)

This discussion also takes into account an individual’s capacity for loss.
The capacity for loss area factors in the client’s emotional response in the
event of any investment fluctuations (client tolerance) and the monetary
return required for each objective (i.e. return of investment or fixed
amount)

In addition to this, we also discuss product risks throughout a range of
more complex investment solutions. This identifies the willingness to
accept various degrees of risk and can narrow down the relevant market
for the individual
Selection of the Risk Profiling tool
There are many tools available within the market. In selecting our preferred
solution we considered the feedback in FCA’s Finalised Guidance – Assessing
Suitability Paper FG11/05 http://www.fca.org.uk/your-fca/documents/finalisedguidance/fsa-fg11-05
The due diligence behind the Risk Profiling tool is identified in Annex 1.
Selection of Funds
After the risk profiling has been completed we, the advising firm, will ascertain
the most appropriate tax wrapper based on the needs and objectives of the
client.
Once this has been identified, we carry out research to determine the most
appropriate investment fund or portfolio of funds. This research is based on
creating a diversified asset allocation which is linked to the client’s attitude to
risk and created by the risk profiling tool. The range of funds we select from are
as follows;





Whole of market funds – active & passive
Multi-manager funds including risk targeted / managed
Distributor Influenced Funds
External Discretionary Fund Managers (considered for investments over
£xxxxxxx)
External Model Portfolios
For whole of market and multi-manager fund selections we have an investment
committee that carries out research on the market, based on specified criteria.
This provides the firm with core funds to select from. Where it is not possible to
access funds based on the research criteria (i.e. a new launch), funds outside
these parameters can be selected but will hold a nominal percentage within the
overall portfolio. The criteria used for fund selection will include;
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




Total cost
Performance over 1, 3 & 5 years
Manager / Fund rating(s)
Volatility
Other (e.g. XX)
This research is carried out using the following independent research tools and is
reviewed on a regular basis. These tools include;






Dynamic Planner™ – a planning tool which analyses the risk of a client’s
investment portfolio (not a fund research tool)
Synaptics – for fund research
Rayner Spencer Mills – for fund research
Morningstar – for fund research
Trustnet – for fund research
Other (e.g. XX)
Where we have used a multi-manger fund for a risk targeted / managed
solution, additional due diligence will be completed. See Annex 2.
Where we identify monies to be managed by an external discretionary manager,
research and due diligence is carried out as contained in Annex 3.
Where we identify funds that are to be managed by an external model portfolio
manager, research and due diligence is carried out as contained in Annex 4.
Selection of Provider
On selection of the fund(s) a scheme provider is chosen to provide the tax
wrapper. For certain types of arrangements the product and its features may
drive the choice of provider prior to the fund selection (i.e. pension drawdown,
guaranteed products, structured products). The tool used to identify this is;

NAME (e.g. Synaptics)
See Annex 5 for the due diligence to support this process.
Not all products / solutions can be researched from the above tool and where
this arises, additional sources of research will be used and can include;
•
•
•
•
•
•
•
www.trustnet.com
www.structuredproductreview.com
www.futurevc.co.uk
www.taxshelterreport.co.uk
www.taxefficientreview.com
www.dgcassetmanagement.com
Other (e.g. XX)
Where the portfolio consists of a range of funds and / or additional functionality
is required we may use the services of a platform provider. We research the
platform market on a regular basis to select the platform(s) we consider most
appropriate for our clients but assess its appropriateness for each client
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objective. To research platform providers we use the information gathering
from;

NAME (e.g. Rayner Spencer Mills or Synaptics)
We also carry out our own due diligence for each chosen platform provider. This
is contained in Annex 6.
Post Transaction
It is set in our service standards to regularly review the investments we have
arranged on behalf of our clients. This is to ensure they remain suitably invested
within the funds and within the most appropriate tax wrapper. Our on-going
proposition is confirmed in our On-going Services and Proposition document. The
breakdown of our service costs are detailed within this and are agreed with the
client when the transaction is arranged.
We constantly review all aspects of our services to ensure they remain suitable
and appropriate. These reviews are carried out following the process of
gathering internal Management Information and through direct discussions with
our clients.
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Annex 1: Due Diligence - Risk Profiling Tool
Due Diligence – Risk Profiling Tool
Name of risk profiling tool:
XX
Planned frequency of review:
XX
Month / Year carried out:
XX
1. What is the background to the supplier of the tool?
2. Is the tool independent from all resulting investment and fund solutions?
If not, how do they ensure there is no conflict in the end outcome?
3. How are the risk questions constructed? How often are these reviewed /
revised?
4. Will questions be understandable to the typical client of the firm? What
evidence do you have that the questions are understandable?
5. How are the risk outcomes produced based on responses / answers?
6. How many risk groups do you use within the tool and how are these
derived?
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7. Does it demonstrate the effect of capital fluctuations and losses for
emotive purposes? If so, how?
8. Does it link risk outcomes to asset allocation models? If so, who develops
these and how?
9. Can it compare asset allocation models to an existing and suggested
investment portfolio?
10. How often is each module above reviewed and how are any amendments
communicated?
11. Are there any limitations within the tool? If so, what are these?
12. Can these be mitigated in the final risk outcome and how might this
impact the suitability assessment?
13. Is there any other functionality available within the tool?
14. How is training on the tool delivered / received?
Additional comments
COMPLETED BY............................................................
DATE.........................................................................
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Annex 2: Due Diligence – Multi-Manager of a Risk
Targeted Fund
Due Diligence – Multi-Manager of a
Risk Targeted Fund
Name of Fund:
XX
Name of Fund Manager:
XX
Planned frequency of review:
XX
Month / Year carried out:
XX
1. Objectives mandated to the Fund Manager
2. Objectives in a rising and falling market (benchmark performance)
3. Asset Allocation Model and Variances Allowed
4. Active / Passive Philosophy and Investment Instruments Used
5. Strategic / Tactical Asset Allocation
6. Use of Unregulated Collective Investment Vehicles
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7. Fettered / Unfettered Philosophy
8. Fund selection process
9. Approach to new fund launches / markets / sectors
10. Accessibility to Fund (products and platforms)
11. Distribution Technology Risk Score (as at specified date) – Can this
rating fluctuate?
12. Corporate Governance monitoring Fund Objectives
13. Liquidity Position
COMPLETED BY............................................................
DATE……………………………………............................................
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Annex 3: Research & Due Diligence - Discretionary Fund
Manager
Research
&
Due
Diligence
Discretionary Fund Manager
-
Name of Discretionary Firm:
XX
Planned frequency of review:
XX
Month / Year of Review:
XX
Research
1a. Total costs
1b. Minimum investment amount
2. How is
appropriate?
performance
benchmarked?
Is
this
method
considered
3. Performance / Track Record
4. Size and structure of the firm
5. Client Contact. Do they deal directly with clients and how is the
relationship managed between us and our clients?
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6. Other DFMs considered and discounted? Reasons
Due Diligence
1. Who agrees ‘risk’ with clients?
2.
How is risk managed by the DFM?
3. How are we able to monitor and track this?
4. What investment vehicles do they use?
5. Which tax wrappers are they able to manage?
6. Can they discretionary manage funds within a platform?
7. Client’s tax position where tax liability is created on sale of funds. How
and when are these calculated / communicated?
8. Reporting periods. At what frequency are reports published and are these
produced in a client friendly format?
9. Do they provide us with any on-going MI to allow us to assess their ongoing suitability?
10. Are the roles and responsibility lines for each party clearly defined?
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11. Will we be able to demonstrate that the DFM is adding value to our
services and our clients on an on-going basis?
Additional comments
COMPLETED BY............................................................
DATE.........................................................................
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Annex 4: Due Diligence - Model Portfolios
Due Diligence - Model Portfolios
Supplier of Model Portfolio:
XX
Planned frequency of review:
XX
Month / Year review carried out:
XX
1. Background to supplier of the service? E.g. How long have they provided
the service?
2. Is their criteria for fund selection sufficient to ensure we can meet the
definition of independence?
3. How do the model portfolios fit with our risk profiling outcomes?
4. Is the asset allocation of the model portfolios in keeping with our own
philosophy about investment risk and asset allocation?
5. How often does the supplier review its portfolios model?
6. At what frequencies do they recommend rebalancing of the portfolio?
7. How do they benchmark portfolios?
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8. What is their track record / past performance?
Additional comments
COMPLETED BY............................................................
DATE.........................................................................
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Annex 5: Due Diligence – Research Tools
Due Diligence - Planning Tools
Name of Planning Tools:
XX
Planned frequency of review:
XX
Month / Year review carried out:
XX
1. Is the tool free from all provider influence, including funding?
2. Does the tool include all Retail Investment Products as defined by the
Financial Conduct Authority? If no, which products are excluded? How will the
firm carry out research on these Retail Investment Products?
3. Does the tool offer unrestricted access to all providers from the whole
marketplace? If no, what are the limitations of the system and how will
additional research be carried out? Would any other tool offer whole of
market access?
4. How do you track and obtain updates to the tool? How do you ensure that
the most up-to-date version is being utilised by all users of the system?
5. Does the planning tool have unrestricted access to all the Evolved Providers
through the platform connectivity service?
6. How often do users of the tool receive training and who provides this?
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Any additional comments:
COMPLETED BY............................................................
DATE........................................................................
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Annex 6: Due Diligence – Platform Provider
Due Diligence – Platform Provider
Name of platform provider:
XX
Planned frequency of review:
XX
Month / Year carried out:
XX
1. Are all platform fees and fund charges transparent?
2. Is there the option to white label the platform and is this flexibility
something that will benefit our firm and clients?
3. Does the platform encompass all Retail Investment Products? If not, what
are the main exclusions?
4. Does the platform have access to whole of market or a substantial range
of funds?
5. Are the funds available on the platform presented without bias?
6. Is the platform able to accommodate other assets, such as existing
investments, property, savings, etc.? If so, how are these valued?
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7. Are model portfolios used? If so, what is the availability of the portfolio
funds?
8. Is rebalancing available? Is this an automated process?
9. Re-direction? Can this be accommodated and over what timescale and
cost?
10. Will the platform provide consolidated client valuations and reports ‘on
demand’? Are these in a client friendly format?
11. Does the MI provided by the platform provider fulfil our firm’s MI
requirements?
12. What is their financial position and strength? (AUM, ownership, etc.)
13. What support and training is available from the platform provider?
14. Are services documented in a Service Level Agreement and do their
service standards meet our operational objectives?
15. How easy are their systems to use for both us and our clients?
16. Do any conflicts of interest exist? If so, how are these managed?
Additional comments
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COMPLETED BY............................................................
DATE.........................................................................
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Annex 7: Due Diligence – Investment Solutions Support
Due
Diligence
Solutions Support
–
Investment
Name of Investment Solutions Support:
XX
Planned frequency of review:
XX
Month / Year review carried out:
XX
1. The History of the Investment Solutions Support.
2. The Vision.
3. What is the Investment Solution Support’s Ethos and Strategy?
4. What does the Investment Solution Support offer?
5. Who are part of the Management team?
6. What teams make up the Investment Solution Support?
7. What are the benefits of using an Investment Solution Support?
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Any additional comments:
COMPLETED BY............................................................
DATE........................................................................
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