FTRC's Good Practice heralds better understanding of asset allocation tools

The Financial Technology Research Centre (FTRC) has issued a guide for providers in notifying financial planners of changes they make to the assumptions used by their asset allocation tools.

The Good Practice guide, which is an attempt to bring more transparency to the service, has been published by Adviser Forum, a group of advisers and life and pensions and wrap providers which is managed by FTRC.

It is in part a response to concerns raised by the regulator about the use of such tools in the platform discussion paper published in July.

In the paper DP 07/2 the Financial Services Authority (FSA) stated that: ‘We are concerned that some firms or advisers may adopt platforms and use portfolio planning tools without understanding how they work or have the expertise to use them, to a potential detriment for the customer.’

Areas that are discussed in the guide include steps advisers should take when selecting tools and procedures which suppliers should adhere to if they change the underlying assumptions of the tools. FTRC is hoping to promote transparency so that advisers can pick the tools that will best suit them.

Ian McKenna, director of FTRC, said: ‘Companies have different assumptions on their asset allocation tools to cater for the same attitude to risk. None of these are wrong but advisers need to know what assumptions are being made by the provider. If an actuary is making changes to the assumptions and adviser does not know about it, who is giving the advice?

‘It is in the industry’s interest to have a greater level of information and understanding for advisers. This will quash any concerns that the FSA has about asset allocation tools.’