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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. V2 May2016 1 NAME OF FIRM Logo of the firm Research and Due Diligence Latest review and update: V2 May2016 2 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 V2 May2016 3 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) V2 May2016 4 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 V2 May2016 5 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 V2 May2016 6 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; V2 May2016 7 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 V2 May2016 8 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. V2 May2016 9 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? V2 May2016 10 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......................................................................... V2 May2016 11 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 V2 May2016 12 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……………………………………............................................ V2 May2016 13 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? V2 May2016 14 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? V2 May2016 15 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......................................................................... V2 May2016 16 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? V2 May2016 17 8. What is their track record / past performance? Additional comments COMPLETED BY............................................................ DATE......................................................................... V2 May2016 18 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? V2 May2016 19 Any additional comments: COMPLETED BY............................................................ DATE........................................................................ V2 May2016 20 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? V2 May2016 21 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 V2 May2016 22 COMPLETED BY............................................................ DATE......................................................................... V2 May2016 23 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? V2 May2016 24 Any additional comments: COMPLETED BY............................................................ DATE........................................................................ V2 May2016 25