threesixty Launches New Asset Allocation Tool
threesixty, the fee-based IFA support services provider, has announced the launch of a new asset allocation tool for its clients, which has been created in conjunction with consulting actuary firm AKG. The tool has been developed in response to concerns of impartiality raised by advisers about asset allocation tools being supplied via product providers’ websites, and the resulting influence providers have on these tools.
David Ingram, threesixty partner, said: “Asset allocation is an important part of portfolio design and, according to some research, can account for over 90% of the total return of a portfolio¹. Matching a client’s ‘attitude to risk’ (ATR) to an investment portfolio is an area where asset allocation is the priority.”
Nigel Balchin at AKG, said: “We have been pleased to work with threesixty in the production of this valuable tool for its clients. Asset allocation is rightly at the heart of intermediary investment advice and this resource, entirely independent of any product provider, gives a robust starting point for advisers”.
According to threesixty, although there are already IT-based solutions to risk-based asset allocation on the market, these are based on psychometric questioning techniques and can be time consuming as well as difficult to use with clients. This means that while they provide a useful audit trail it can be difficult to show that the client fully understood the importance of the questioning process.
David Ingram continued: “What we have done with AKG is to design some clear definitions of risk that we believe most clients will be able to understand. These definitions, which are also repeated in our template Suitability Letters, are available for clients to read and decide which most closely matches their ATR for the specific investment under consideration. This part of the process is paper-based and is intended to be signed by the client.
“This is intended to make it more obvious that the client has had to read all of the definitions before agreeing which one they wish to be identified with.”
According to threesixty, this provides a very clear audit trail for the adviser’s client file.
The threesixty process also recognises that appropriate asset allocations will vary for the same ATR over differing investment terms.
AKG has provided model asset allocation portfolios for each definition and each term and once the client has confirmed their ATR, the appropriate portfolio can then be accessed via the threesixty website.
The system will also identify the appropriate portfolio in the form of a pie chart, which can be ‘pasted’ into the suitability letter or report for the client. In addition, while the recommended portfolio is on the screen the adviser can ‘click’ on any segment of the pie chart and be taken to the relevant section of the threesixty advisory panel.