Asia’s rising star

Great efficiencies exist for firms where good advice and modern compliance meet. You can even cut out the middleman.

A great influence in the recent development of our new research proposition was the 2016 thematic review TR16/1; Assessing suitability; Research and due diligence of products and services. It doesn’t sound exciting but it was pivotal to how the role of research and investment due diligence has evolved.

In building the new research suite Pathways, Synaptic used the framework defining best practice outlined in the paper, which meant that when MiFID and Consumer Duty landed, everything was already correctly aligned with the role the FCA had set out for research.

The value proposition offered by Synaptic is the quick and easy conduct of mandatory due diligence, with a good measure of finesse on top, focussing on delivering proof of suitability. This includes full cost disclosure and risk profiling of clients and investments. Several features, not found in other software packages make Synaptic a unique tool for firms.

As the basis of our discussion here - TR16/1 explores three ‘root causes of poor consumer outcomes’:
• The poor quality of an advisory firm’s research and due diligence.
• Incorrect risk profiling.
• Costs.

Synaptic users have the relevant information at their finger tips to address concerns regarding the first of the three bullets above. Research has been the expertise of Synaptic and new Fintel stablemate Defaqto for over 20 years. Both firms have dedicated teams who build proprietary databases of platform, product, portfolio and fund information. This ensures that illustrations and cost disclosures can be generated instantly, without the need for manual lookup or calculation.

Built around a capability for conducting multiple reviews, Synaptic builds the perfect audit trail of advice and suitability.

Due diligence for new money, switches and reviews

Synaptic Pathways reports support recommendations for new money, switches and reviews. The pre-RDR regime required proof of whole-of-market research provided on a client-by-client and case-by-case basis. This no longer stands, replaced by MiFID and PROD requirements around the design of investment solutions for target market identified clients. What was required on a client-by-client basis has moved to generic research at proposition level.

Confirming this shift in emphasis, TR16/1 also cemented the role of centralised investment propositions and panels. This is particularly relevant today in the tightening up of oversight and accountability in large firms or networks operating with Appointed Representatives (ARs). Synaptic Pathways allows firms to build CIPs and CRIPs (Centralised Retirement Investment Propositions). Easy to implement in Synaptic, this has been a gift to firms who can use the new rules to streamline their advice and ensure greater consistency of quality.

Modern due diligence is about proof of suitability around risk profiling and cost

If the firm’s CIP is correctly maintained, the investment solution will be correct for the client, based on their alignment to the appropriate target market. The role of due diligence therefore is to generate reports that can:

• Demonstrate suitability for compliance purposes and
• to generate research that can be used to explain the role of risk in the investment recommendation and
• disclose the charges, calculate reduction in yield and show the impact of charges on growth.

The Synaptic cost analysis is comprehensive - a user can toggle between different views showing the impact of costs – without costs, with costs, with costs and inflation:

From the screen above, the user has access to a full range of analysis, including both stochastic and deterministic forecasts and cost analysis, inflation overlay and a MiFID compliant table of costs. Capacity of loss can also be determined and recorded using the Moody’s metrics and additional questionnaire. Synaptic has risk profiling and MiFID compliant cost analysis built into every report.

Firms overly reliant on platform-provided tools may become excessively dependent on a middleman, making it more difficult to demonstrate they are acting in the clients' best interests with integrity. Regulatory concerns often revolve around transparency and the conflict of interests arising from providers or platforms offering research and due diligence assistance. Many experts argue that platforms excel when focused on custody, dealing, and service rather than attempting to redefine the advice process or obscure the boundary between themselves and the firms they serve.

Another challenge arises when firms rely on a platform's research and due diligence but then need a separate methodology for assets not held on their preferred platform, often referred to as "held away" assets.

Synaptic enables firms to generate illustrations, including probability-based graphs of expected outcomes, demonstrating alignment with goals and proof of suitability, without needing to coordinate with platforms or providers for these illustrations. This streamlines investment due diligence within a firm.

Synaptic determines the cheapest (or available) fund share classes by platform, applies family assets, special deals, adviser charging, and forecasts with and without costs to assess the impact of costs on growth. Additionally, it offers a full stochastic analysis of the likely impact of inflation (provided on demand by Moody’s). All these features are standardised in reports, ensuring firms achieve a consistent level of compliance without wasting time on complex research methodology manually.

Screen shows Synaptic’s ability to analyse and compare costs of investments across multiple platforms, including the calculation of reduction in yield values.

The role of research and due diligence in proving and re-proving suitability

Synaptic offers a consistent research methodology applicable to all of a firm’s clients’ holdings, regardless of the preferred platform. This is possible in part thanks to the powerful Salesforce-platformed client and holdings areas, usable standalone basis or in conjunction with a firm’s back office (including Intelliflo).

Synaptic has been designed to have access to the relevant data to ensure that accurate illustrations can be requested on demand for financial planning and compliance purposes.

The role of Moody’s stochastic forecasts in Synaptic

Synaptic illustrations are richer and more relevant as a result of the reports’ inclusion of forecasts from Moody’s, the only direct access to the Moody’s stochastic model outside institutions. This depth of reporting and forecasting ensures that Synaptic’s users can fully demonstrate the role that risk is playing in their client’s portfolios. Moody’s calculations supply expected returns of portfolios as well as metrics for loss, represented by Moody’s ‘Value at Risk’ metric, at 95% certainty.

A compliant analysis for switching including critical yield calculation

To demonstrate viability or value for money in investment switching, and of course, to comply with COBS rules, Synaptic includes switching analysis and reporting. Single or multiple ceding schemes can be used. The research methodology is flexible, allowing inputs to be based on the illustrations provided by the providers, or to capture costs manually and work out the reduction in yield figures required. This simple process can save a lot of time compared to doing it manually (or yet another system). Screen shows the results page from the switching analysis:

In summary

How a firm chooses to conduct its research and due diligence is central to its effectiveness as an advisory business. Regulation is driving change, and keeping ahead requires the intelligent use of technology. Synaptic has collected the data for use in its applications, including asset allocation, pricing and platform availability of discretionary managed portfolios (DFMs), to reduce the time required for a firms most admin intensive and error prone jobs. Now part of the exciting new Fintel IQ project, aimed at streamlining technology and workflow solutions for intermediary advice businesses, the opportunity for Synaptic to help firms is greater than ever.

For a free trial or demo call:

0800 783 4477
hello@synaptic.co.uk

For more information, please contact eric.armstrong@synaptic.co.uk