Today’s financial landscape boasts a wide variety of methods to invest client assets. Irrespective of portfolio size or life stage of the investor; there is a solution that can match their risk level and specific objectives. Whilst this comes as great news for advisers and investors it often leaves paraplanners with a whole lot more to think about when conducting due diligence.
To kick-start the suitability process, due diligence now needs to extend beyond funds and platforms to include model portfolio providers, discretionary fund managers, multi-asset solutions and more. This often leaves a big compliance burden on paraplanners as nearly 30% of respondents in a recent survey conducted by the Institute of Financial Planning (IFP) said that their firms’ due diligence was carried out solely by paraplanners.
To help alleviate this burden, paraplanners should adopt a systematic approach to due diligence. Paraplanners will stand to benefit by establishing a centralised due diligence process that is comprehensive yet nimble enough to assess a variety of solutions.
Sue Whitbread, Communication Director at the IFP concurs in a recent FT article on best practice, saying, “Having a robust process that can be applied across the business, irrespective of what you are doing due diligence on, can significantly contribute to the lowering of overall business risk.’’
As with centralised propositions, it then becomes extremely crucial to ensure that the centralised process is both efficient and repeatable in order to remain compliant and help the firms’ overall profitability.
A good place to start in the setup of such a methodology is to conduct an audit on a process that has worked in the past. If the review concludes that it works, and is robust - it can then be incorporated into a business-wide model. To be successful the model should be both comprehensive and objective. It should ask enough of the right questions and answer those questions with objective, unbiased, good quality data.
While due diligence plays a key part in de-risking your business, it is ultimately all about doing what’s best for the client. If things do go wrong at some point, having a detailed due diligence process in place can help you prove to clients (and the Financial Ombudsman Service) that enough thought and consideration was put into the construction of their investment strategy.