Value for money matters when assessing suitability

Synaptic is the leading research solution for the calculation of Reduction in Yield (RIY) values for investments, including pension policies.

"If the platform, product and portfolio combination is known, a perfectly formed compliant illustration can be generated by the adviser on demand."

RIY calculations are generally believed to be the most effective way of illustrating the impact of costs, as demanded by the regulator in the proposal of new business (ex-ante), and can be used for all proposals – including reviews. They are particularly effective in making comparisons between the costs of different investment options under consideration, as they assimilate all the costs and produce a single figure for simple comparison.

An important compliance theme that was reaffirmed in both the RDR and MiFID II and will continue to grow in importance is the need to evidence the value of the advice process. Firms have a fundamental requirement to validate their platform, product and portfolio selection, which must include comparison.

Another good reason for firms to acquire their own reliable projection method is to get round the situation where providers use different growth rates in projections. Rebasing projections to align growth rates (single or multiple for low / medium / high) allows the relative costs of products to be considered.

The reason why advisers can struggle with this paragon of metrics is that they do not have access to a sufficiently robust calculator or the many data points required. It can be quite challenging to collate all the relevant data to make a correct calculation. The Synaptic RIY calculations engine routinely makes over 1 million calculations to provide an accurate basis of comparison to demonstrate value for money. For comparison of a portfolio of 10 funds across over 30 on and off-platform pensions savings options, this can be in excess of 3 million calculations. Not something you can achieve easily on a spreadsheet.

An RIY calculation is a way of showing the impact of all charges on a savings, investment or pensions policy over a period of time, quantifying the loss of what otherwise would have been attained if the policy carried no charges at all. It is not as simple as adding up the costs, as the calculation needs to capture the loss of compounded returns.

Synaptic data covers platform, product and portfolio costs to share class accuracy and calculates special deals and adviser charging

In looking across the due diligence offered by our competitors, we believe that Synaptic is the only research house that routinely compiles all the relevant charges information at platform, product and portfolio level, so you don't have to spend time trying to look up and juggle costs to demonstrate value for money or make required disclosures. Other fund research tools can account for portfolio costs, but they can't perform calculations to an 'ex-ante' or 'ex-post' compliant level as they do not have the product and platform data to complete the calculations, nor can they identify the cheapest share class, if appropriate, available across multiple platforms. Synaptic can.

Replacement business – taken care of

Synaptic has put its RIY calculation capability at the forefront of its research methodology in several key areas: value for money comparisons for all kinds of recommendations, including replacement business, costs and charges for ex-ante and ex-post, switching and pension consolidation illustrations and cashflow projections.

Synaptic has always offered research on the basis of comparison. How else to demonstrate value for money? The rules have changed in regard to whole-of-market research in support of suitability, as this is no longer demanded by regulation on a caseby-case basis, but it is required within a PROD framework (at proposition level). And an adviser still has a fiduciary duty to act in the interests of a client and demonstrating value for money is always paramount for any service.

Synaptic provides the full range of options: a whole -of-market comparison on and off platform, comparison within a short list of platform and product combinations as determined by the CIP configured within the system, or if the platform, product and portfolio combination is known, a perfectly formed compliant illustration can be generated by the adviser on demand. This removes the need for reliance on the platform or provider, saving huge time and effort. When it comes to the annual review, the calculations are generated automatically to provide an ex-post report with all the necessary costs and charges disclosure required by MiFID II.

The versatility of the new Synaptic Pathways RIY calculations is shown here (see screen below). It can be used as the basis of whole of market comparison, examination of short list of candidates as part of a recommendation (reflecting CIP options) or a quick calculation for reference.

Tablet computer showing Synaptic Pathways

Please call to book a demo or trial on 0800 783 4477, or email hello@synaptic.co.uk