Overview  

Each year, as your Independent Financial Planners, we review our proposition against the broader market to ensure we are providing cost-effective high- quality investment solutions.

Over the last few months, we have been undertaking a review of:

•          the platforms we use to house your investment

•          the portfolios we invest into

•          our service proposition

The world has experienced incredible disruption, challenge and change over the last 12 months, off the back of a turbulent period prior to that.

Often in times of adversity we see advancement and rapid change, and this has certainly been the case in the Financial Sector. The way in which we operate has changed, for example many of you are choosing to continue with video meetings, and the way we interact with providers has changed equally.

As one would expect, different providers have managed the last few years with differing levels of success.

The aim of this document is to explain our findings and the changes we intend to make to improve your financial planning experience.

Please note, this is not an individualised document. We will follow up (before any change is implemented) with a suitability letter considering your personal circumstances and how the changes will benefit you.

Please also note, any action required as a result of our review is part of the on- going service we provide. It does not trigger any further adviser fees.

When reviewing our proposition we have considered:

Which Platform to use:

1. User experience

2. Ease of administration

3. Technical capability

4. Cost

5. Customer service

Which Portfolios to invest in:

1. Performance/Risk and volatility

2. Breadth of invest choice (i.e. the number of portfolios available)

3. Methodology/Management

4. Rebalancing

5. Cost

6. Sustainability of proposition

7. Integration with platforms and administration

Terms of business:

1. Service provided

2. Our charges

3. Suitability (i.e. which service option is suitable for whom)

Outcomes

Which Platform to use:

• We have concluded that it is the right time to change the primary platform we use to house your investments. We have selected the Fundment Platform due to it’s technical capability, ease of use and low cost.

*In all scenarios modelled, for clients on Quilter, Aviva, A J Bell, Fidelity, Elevate, LV and Aegon this change results in reduced or identical platform charges.

Which Portfolios to invest in:

• The Vanguard portfolios remain attractive for the appropriate investors.

• We have decided to introduce Sparrows Capital Discretionary Fund Management to replace The Parsonage Portfolios.

*  No one will be required to take more or less risk than they currently do.

*  DFM services come at a cost, this cost will be absorbed by Parsonage.

Terms of business:

• Parsonage charges remain unchanged.

• We have simplified our on-going service options to Advisory and Wealth Management.

*The details of our considerations in reaching these conclusions are contained inthe appendix.

Next Steps

• We will shortly invite you to complete the new Defaqto Risk Profile Questionnaire.

• Once received, we will write to you with details of how these change impact you, detailing costs and performance (for example). We will also issue a new Terms of Business confirming the appropriate service level.

• Once you are happy, we will ask you to authorise us to implement the changes.

• We will transfer your investment to the new proposition.

Summary

Our primary aim as Independent Financial Planners is to put you in the best position to achieve your financial goals.

We appreciate that change and disruption are not always welcome, but we strongly believe we must highlight to you when we think we can improve on your current planning. 

Our research and analysis have led us to conclude that, on this occasion, change is required and will put you in better stead over the medium to long term.

The changes we are making will:

• Provide a better platform for us to administer your investments.

• Provide strong and sustainable investment management.

• Reduce the platform and investment charges for the vast majority, keeping them the same at worst.

Making these changes is a very significant piece of work for us to undertake on your behalf. It is part of the on-going service you retain us for, as a result, there are no fees for us to advise upon and implement these changes.

It is our considered opinion that the recommend changes will put you in a better position as we navigate 2023 and beyond. 

Kind regards,

Duncan Farrar

Managing Director

Appendix

The following pages go into more details around the process we have undertaken and why we have selected the solutions we have.

We have broken the information down in to the following sections:

• Platforms

• Portfolios

• Terms of business 

• Risks

Platforms

Our current investment proposition is to use either Aviva or Quilter as our preferred platform provider (we have also historically also used A J Bell, Elevate, Fidelity and Cofunds). This was based on previous research and analysis of the platform marketplace.

With COVID as the catalyst, the market has advanced significantly in the last couple of years. The flexibility, capability and cost of different platforms have all moved on.

We have reached the conclusion that the platforms we use no longer provide optimum value. As a result, we have reassessed the market to determine the most suitable provider in the current marketplace.

We do not simply rely on anecdotal information (although adviser experience provides valuable insight), we use independent research undertaken by The LangCat Limited. For the last 10 years, each year, The Lang Cat produces their ‘State ofthe Platform Nation Report’ providing independent insight and analysis into theplatform market place.

The criteria that are most important to us are:

1. User experience

2. Ease of administration

3. Technical capability

4. Cost

5. Customer service

Having looked at the options available, we have concluded that “Fundment” is our preferred platform for you moving forward.

We have been trialling “Fundment” for a few months and have been impressed with the ease with which our administration responsibilities can be undertaken, the capability of their website, the minimal reliance on wet signatures, the breadth of investment options available and the low cost of the platform.

Of “Fundment”, The Land Cat say:

They also provide a breakdown of platform charges:

The culmination of this, independence, flexibility, and technology make “Fundment” a compelling option. Furthermore, the low pricing across all wealth levels make it attractive to all clients.

Furthermore. I am delighted to be able to confirm we have secured improved terms with “Fundment” for you, detailed below:

Portfolios

As well as reviewing the platforms available, we have also been reviewing the portfolios we use to manage your money.

Our current portfolio offerings are either a blend of Vanguard LifeStrategy Funds or (in the vast majority of cases) our in-house Parsonage Portfolios.

For many years, Steve (Stephen Williams, our external investment consultant) has been a fantastic guide to help us ensure we deliver solid performing portfolios to you across the risk range. However, we have to consider other options to establish if this remains the best option or not. 

When reviewing the portfolios, the main areas considered are:

1. Cost

2. Breadth of invest choice (i.e. the number of portfolios available)

3. Methodology/Management

4. Rebalancing

5. Sustainability of proposition

6. Integration with platforms and administration

7. Performance/Risk and volatility

 We have concluded that:

• The Vanguard LifeStrategy Funds remain an effective tool for low-cost investment management.

• Introducing Discretionary Fund Management gives us a more agile investment approach.

The considerations when reviewing our investment approach:

1. Cost. The Parsonage Portfolios are a mixture of ‘active’ and ‘passive’ funds, active funds incurring higher charges than passive.

2. Choice. We have a streamlined portfolio offering of 4 traditional portfolios and 4 responsible portfolios. There are alternatives available that offer 11 traditional and 11 responsible.

3. Management. Whilst the Parsonage Investment Committee endeavours to create and administers the portfolios, there is a limit to the research and analysis that can feasibly be undertaken. As a result, an external specialist whose sole function is to develop and administer portfolios is attractive.

4. Quarterly rebalancing. Whilst it remains important to rebalance investments to ensure they remain in line with the intended risk profile, the rigid timing of the rebalancing is not necessarily ideal. An approach where there is a tolerance of drifting in the portfolio to a predetermined threshold, above which a rebalance will occur is more flexible and reactive to market conditions. Historically, it has meant, there haven’t been regular small gains realised potentially creating ataxable event.

5. Sustainability. Whilst our investment consultant is a talented individual, he is an individual. It is a concern to me that if anything were to happen to him it would create uncertainty and potentially instability with the portfolio construction and management.

6. Integration. As the portfolios currently used are unique to Parsonage, each one must be manually built and relies on all the platforms we use having the same fund offering.This is unfortunately not always the case.

7. Performance. Whilst over the medium and long term the Parsonage Portfolios have performed very well, we are not Discretionary Fund Managers and therefore cannot manage our portfolios as efficiently as we would like them to be.

As a result of the above we have again gone to the market to assess what alternatives are available to try and find the most suitable solution.

Our research has led us to look to incorporate a Discretionary Fund Manager in to our proposition as the more sophisticated option to Vanguard Lifestrategy portfolios.

A Discretionary Fund Manager or ‘DFM’ exercises their professional discretion to buy and sell investments on your behalf. This is in contrast, to the current advisory mandate in which you, as the client, are asked to approve recommendations in advance.

There are many providers available, so we have undertaken due diligence to filter the options down to the one we find most suitable.

We have settled upon Sparrows Capital, 5* Expert Rated by Defaqto. Founded in 2013, Sparrows Capital is an independent investment manager.

Their aim is to make investing intuitive and efficient. They design low cost, diversified portfolios with the intention of delivering the market return over the long term. They apply a disciplined, long only, unleveraged allocation process, using cost effective index funds.

Their portfolios are managed strategically using an evidence-based approach incorporating factor tilts or ESG filters, currency hedging and inflation protection where deemed appropriate.

Evidence-Based Investing applies the lessons of over a century of investment history, systematically and unemotionally.

The discipline is practised by some of the world’s largest sovereign wealth funds and pension funds, most notably Norway’s $1trn Government Pension Fund Global and Japan’s $1.5trn Government Pension Investment Fund.

Conclusions from historical data are incorporated into the process only where these are backed by robust evidence derived from academic studies.

We believe that Sparrows Capital provide a great solution for our clients. They offer a robust investment proposition and utilise low-cost funds to provide maximum return to clients.

Their rebalancing proposition is dictated by how far the portfolio strays from its original asset allocation. As a result, there are no periodic rebalances.

Rebalancing only occurs when the portfolio has strayed too far from the original asset allocation.

The cost of providing Sparrows DFM service will be absorbed by Parsonage Financial Planning.

Terms of Business

As we are making changes to the platform and investment proposition, it is only appropriate we ensure that clients have the most suitable on-going service.

Below I have summarised the current proposition and the new options moving forward.

As is currently the case, for Wealth Management clients, Lifetime Cashflow Planning and all Investment Top Ups will remain included at now further cost. We will also start producing and annual ‘Tax Pack’ to provide you and/or your account with the requisite information about the monies we look after for your tax return.

The changes to our service proposition are small for most clients. We are happy to discuss this on an individual basis to ensure our service meets your needs.

If you wish to discuss this, please contact your adviser directly who will be happy to talk it through.

Risks

Moving investments from one platform to another, and changing investment portfolios, presents some potential issues:

1. Time out of the market

2. Disruption to income/accessibility

3. Taxable event

Whilst it is never desirable for us to cause any issues for clients, we believe it is more important to ensure we ensure the on-going suitability of the providers used to administer your investments. At the extreme the alternative is to remain with the same provider in perpetuity regardless of whether they are fit for purpose. We hope you will agree this is not a good outcome for you or us.

Time out of the market. When changing the platform provider, you can either transfer ‘in specie’ (which means your money remains invested at all times) or sell to cash and transfer before reinvesting. As we are looking to change the nature of the investment, an ‘in specie’ transfer is not an option. As a result, there will be a brief period where your money will be out of the market. If the market falls whilst you are uninvested the move will bring you a return, but if it rises whilst you are uninvested it will reduce your return. Unfortunately, when implementing change, this risk is unavoidable. The time out of the market will be brief, and we are hoping that it will be a relatively benign period.

Disruption to income/accessibility. When moving money between platforms,there will be a brief period where we will be unable to instruct withdrawals. As a result, it could potentially result in a delay income payment. We will discuss with you on a personal level how it could impact you and work out a solution to mitigate the risk.

Taxable event. For those clients with either a ‘General Investment Account’ or a ‘Collective Investment Account’, these investments operate on a Capital Gains Tax basis. In selling your investment you may realise a gain that will attract tax. Firstly, we will highlight any gains (and subsequent tax) to you prior to any instruction. Secondly, with the reduction of the Capital Gains Allowance to £3,000 within the next 18 months, whilst we appreciate it isn’t ideal realising the gains whilst the markets are somewhat subdued, the allowance of £12,300 might be preferable.