What happens when as a paraplanner you come across a pension or investment you can’t research – the veritable brick wall? Siân Davies Cole, director of PlanWorks, suggests some ways to deal with the problem
Reviewing a client’s existing arrangements, such as pensions and investments that they have in place, before seeing the Financial Planner is a key part of the Paraplanner role.
But sometimes we hit a brick wall with this analysis.
We have very expensive, comprehensive tools available to us, but sometimes, in certain situations, the fund or funds held within the plan cannot be found using these tools.
This is quite common with older plans or workplace pension schemes. Sometimes, you will see that the provider has referenced this when they respond to the LOA request with “This fund cannot be found using research systems.”
So, what do we do?
We have to look at what information we have got and what else we might be able to get but also why we need it.
This is the bit they don’t teach you when studying the diploma or any of the available exams! If we keep the questions ‘Why do we need this?’ and ‘What will this mean to the client?’, then that hopefully will help guide you, and with this, like with most things that aren’t in the textbooks, there is no right or wrong answer.
So, first off, when looking at an existing plan, we are always trying to find out the fundamental things about the portfolio: the asset allocation and the historic performance. The main reason for this is to understand whether, generally, the portfolio is invested in a way that meets the client’s agreed risk profile and whether the historic performance has been acceptable when compared with other measures like inflation or other relevant benchmarks.
Now, let’s look at how we might tackle this if we cannot find the funds held within an existing plan on FE Analytics or any other research system you might use.
If there is one fund within the plan and the provider has given us a factsheet – hey presto – we can use that. It might not give us exactly what we want in the format that we want it, but it’s likely to be enough for our analysis. We do find FE Analytics and the other research tools we use to be more accurate, and you can get a whole lot more data, so I would always use those over a factsheet if it’s possible.
You could try searching TrustNet or a quick internet search. But remember the fundamental rules of reviewing an existing plan: do not make assumptions and be wary of anything you find online. If you do find the answers through an internet search, just take care, as I often see this bit go wrong.
Where you have more than one fund and only factsheets to use for analysis, you might have to put together your own tool to work out the asset allocation, which will work out the proportion of the portfolio in equities, fixed interest, etc.
Whenever I’m looking at asset allocation, I always try and simplify the data we get and put the allocations into four buckets: Equity, Fixed Interest, Alternatives/Others and Cash. It’s my belief that this is a more client-friendly way to look at and understand asset allocation than breaking down equity content by geography, etc. Of course, detailed information about this will always be available within a factsheet or using a research tool.
You might also need to make your own tool to look at performance if you only have factsheets to go from and you’re dealing with more than one fund. If you have the performance data per fund, you could turn the performance for each fund into a proportion of the portfolio to apply it overall for each year. For example, Fund 1 makes up 45% of the portfolio and performed 5.30% in Year 1 and 8.34% in Year 2 – you can work out how much in pounds that means the fund would have grown by in Year 1 (the most recent year) and work backwards, taking off the value that equals the growth. It sounds complicated, and it is, but once you make a test tool, this can be a gamechanger.
I am totally aware how back-of-an-envelope this is, but in the absence of being able to analyse the portfolio properly, this seems the only way. You could just look at the asset allocation and performance of each fund, but, personally, I don’t find this adds any meaning, and the client will struggle to answer the question “What does this even mean?”
Looking at the overall view of the portfolio is key, even if you accept that it’s not as accurate as if you were able to use a tool to build and analyse the portfolio.
As long as I have been in this amazing profession, there has always been uncertainty about how to work with existing plans, but I think if you have one of the key skills of being a paraplanner – a lust for knowledge and understanding – then you literally cannot and should not stop until you have an answer that you are happy with.
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