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2021 - Q4

The Final Frontier

of automated (ex-post) reviews conquered

In this edition...

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The final frontier of research and due diligence conquered

Eric Armstrong
Client Director

The last 10 years have seen a rapid evolution of the operating model of advisory firms, to the extent that technology is now as important a consideration as regulation or the performance of the financial markets.

Even modest-sized firms may be paying thousands a year for back-office systems, third-party research, and reporting tools – so getting value for money is very important, as is the need to ensure that the processes that are supported by technology are the correct ones.

Until now, some processes, such as a fully automated review process (ex-post) have been outside the reach of technology. This article looks at how the new research suite Synaptic Pathways takes the role of research further than ever before and provides some insight into how better advice and greater efficiencies may be within the reach of firms.

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Figure 1: Synaptic Pathways home page.

A better technology model for advisory businesses

The direction of travel has been dominated by the assumption that the technology and research relied on by businesses needed to be centred on their CRM, the component required for the heavy lifting, to which third party applications could be integrated. Influential research, conducted by Origo and The Lang Cat, identified the shortcomings of this approach. In the report 'A disconnected world: the adviser's reality', (still available online for free), a sobering assessment of the inadequacies of technology in the average firm is laid out – pointing to the evidence that very few, if any, meaningful 2-way integrations exist at all. Meaning that complex advice processes are fragmented.

Firms up and down the country absorb the cost for their back-office systems but often cannot rely on the data in the system, so end up contacting providers and platforms directly prior to client and investment reviews, and spend hours rekeying data into multiple standalone systems. It is normal for risk-profiling tools and asset allocation models to be separate to the main system, meaning that research and due diligence to support new sales, rebalancing or switching of investments is managed piecemeal, with all the attendant issues around efficiency, accuracy and reliability.

Tools that are not aligned are used together to produce results that do not deliver consistent, quality advice, in spite of the FCA's explicit warnings of problems of non-alignment. The main reason why firms continue to pay fees for back-offices is because they need the software to manage payments to advisers, obviously an essential function for the business, but these payments are divorced from the advice process, so the ability for the system to conduct research and due diligence in support of advice is subordinated to practice management requirements, to the ultimate detriment to advice.

From a financial planning perspective, these old systems are increasingly redundant and firms can acquire a quick, material advantage by upping their game in this area. One firm was quoted recently as taking eight hours to complete a MiFID II compliant report for a client because of the multiple sources that needed to be referenced, and the fractured nature of the reporting. Back-office systems will never be the answer to the challenges of technology as they rely on integrations to third-party tools that the industry has failed to deliver for a decade. Furthermore, the CRM functionality that supports client data, documents, workflows, security and a host of other elements previously associated with the CRM package, are available cheaper than ever off the shelf, or are shipped with the new generation of tools that advisers could be using.

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Figure 2: Organisation of data against the client record including ATRQ and research.

MiFID II requires full assessment of suitability to be evidenced as part of the annual review

MiFID II has been the catalyst of the change that is now underway. Consider that until the recent MiFID II requirements on ex-post (reviews), regulations required advisers to demonstrate fulfilment of a 'service'. A meeting, phone-call or email perhaps, but there was no requirement for proof of full suitability, including review of circumstances, objectives, investments and risk profiles. The old advice model did not have to factor all of this activity into its costings or compliance considerations.

The only way that firms can thrive in this new world is to make the processes integrated, seamless and automated. For that to happen, all the data needs to be available to the applications that provide the research and illustrations. There are two possible routes out of the historical impasse:

  1. Continue to try to build complex infrastructure based on the traditional CRM model, integrating third-party tools and hoping that everything will evolve miraculously in a manner that it never has before.
  2. Secure the data required as a priority and ensure that the applications that consume the data are market leading, modern, relevant post-MiFID II and fully integrated. Ensure that you have access to automatic valuations from platforms and providers to allow the firm to control illustrations leading to recommendations and sales and, crucially, ex-post reviews. Ideally the package should come with access to the world's most powerful CRM functionality from Salesforce® to guarantee the flow of the data, workflows, security and access.

Full review capability included with Synaptic Pathways

The latter is delivered in full as part of the new Synaptic Pathways product, which includes a fully automated review process for investments, what we consider to be the holy grail of research, and something that has never been delivered for the whole-of-market by an independent research house.

Firms now have the opportunity to embrace effective digital transformation that is research-led rather than CRM-led (or research-led with CRM capability integral to the bundle), ensuring that optimum outcomes for clients are secured by institutional-strength research fully underpinning their advice for the first time.

Firms have the chance to change up to Synaptic from pre-MiFID II systems and standalone tools in order to embed automation through advice, research and due diligence processes and cutting out unnecessary cost, constraints and errors imposed by legacy research and technology.

Firms can now configure their Central Investment and Retirement Propositions as they want and work easily with whichever financial instruments make sense for them and their clients.

The modern approach to portfolios

The Synaptic Pathways solution channels recommendations through portfolio investment options categorised by their regulatory status:

  1. I.D.D. (Insured) portfolios.
  2. Institutional DFM portfolios.
  3. In-house DFM portfolios.
  4. Model (advised) portfolios.
  5. Bespoke portfolios.

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Figure 3: Synaptic Investment Pathways - categories of portfolios by regulatory status.

Here are some of the main features on offer in the new Synaptic Pathways suite

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Figure 4: Easy to configure your firm's Central Investment Proposition (CIP) – Platforms, products, portfolios, fund lists and target market.

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Figure 5: Forecasts provided by Moody's Analytics on real and nominal basis

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Figure 6: Stochastic analysis to explore sustainable withdrawal rate and age of ruin in respect of fund longevity

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Figure 7: Design for automated ex-post review, includes ceding policy and proposal going forward.

  1. All features are fully integrated and built on the Salesforce platform™
    • Single log on.
    • No additional licensing fees or agreements (all integral to the Synaptic proposition).
    • All the Salesforce proven workflows, security and data capabilities.
    • Open platform, so easy to share data or integrate with existing IT.
    • Constantly being improved as part of the world's most powerful and successful CRM eco-system.
  2. Firms can work within their Central Investment Propositions (includes their Retirement Proposition)
    • Full PROD compliant framework including target market alignment.
    • Full platform, product, portfolio and fund list governance and reporting.
    • Configure segments in line with customer client types (target markets).
    • Network controls allowing permission sets to be varied and controlled centrally or at firm level.
    • Full illustration capability using the same methodologies employed by providers, reducing reliance on providers and platforms to perform independent due diligence in line with COBS.
    • Ability to convert notional holdings (research based) to 'in-force', which in turn can be updated automatically by contract enquiry in new Synaptic holdings area, ready for review.
  3. Pre-sales research and due diligence – Ex-ante
    • Align to ATRQ and investment strategy by asset allocation.
    • Risk profile any investment on model-driven basis (no need to pay for additional risk ratings or reliance on analysts).
    • Comprehensive forecasts on deterministic and stochastic basis.
    • Full MiFID II disclosure of costs and charges, including the impact of costs on expected growth.
    • Transparent treatment of the impact of inflation.
    • System can access all relevant platform, product, portfolio and fund data automatically.
    • Cost analysis covers MiFID II (transactional) data, special deals and adviser charging.
  4. Full automated review capability – ex-post
    • The first fully automated, software-based review capability for the whole-of-market.
    • Data from Synaptic proprietary databases as well as platform and provider integrations for valuations purposes.
    • MiFID II compliant, providing full analysis to evidence suitability.
    • Capable of supporting financial planning and informed investment decisions based on Moody's Analytics stochastic forecasts of investment outcomes.
  5. Full switching analysis
    • Presents comprehensive analysis of costs through detailed RIY calculation.
    • Documents the impact of costs on compound growth.
    • Presents maturity values for investments using deterministic, stochastic and COBS assumed growth rates, with option of manual growth rates.
    • Full pension consolidation tool.
    • Critical yield and hurdle rates provided on automatic basis to assess option to switch.

Abandon legacy technology where it fails to support your firm's processes effectively and embrace the potential of a truly digitally transformed future with Synaptic.

To experience the future of advice with no obligation, email or call us on 0800 783 4477 for a free trial or demo. Alternatively visit the Salesforce AppExchange by Googling ‘Salesforce AppExchange Synaptic’.

Unreleased features referred to in this article will be completed in Q1 2022.