The indices will be offered across three risk levels – lower, moderate and higher – and have been launched in association with the Society of Trust and Estate Practitioners (Step), which will offer them as a new service to its 17,500 members.
Richard Sayers, CEO of Enhance Group, said the Trustee Managed Portfolio Indices would provide powerful information about investment performance, risk and client suitability.
“At the moment we collect all this information from all these live portfolios. Now we are going to go to investment managers and build indices that are an alternative to Apcims’.”
Many members of Step, who are based across 84 countries, already submit portfolio information to Enhance. The new service will be available to members based in the UK, Ireland, the Caribbean, Switzerland, the Crown Dependencies, Africa, the Middle East and Continental Europe. It will not be available in Canada, the US, Australia or in Hong Kong or Singapore.
Different risk metric
Sayers said that because trustees have a heightened duty of care they want to make sure that if they are ever challenged they can say they chose investments they would have put their own money into.
For this reason he believes these indices will be a good yard stick for wealth managers in the post-RDR world when proving client suitability will be of paramount importance to the FSA.
A crucial difference with the Apcims indices is that risk is measured by volatility and drawdown rather than exposure to equities.
To fit in with the lower risk index portfolio volatility must be less than 6% per annum and drawdown no more than 10% on a 12-month rolling basis.
Moderate risk portfolios will have volatility of between 6% and 10% per year and no more than 20% drawdown, while higher risk portfolios will have more than 10% volatility and the potential for more than 20% drawdown.
“Balanced to a lay person is 50/50 and what is low risk to one person is not to another. If you go for Apcims’ balanced you are likely to have 66% in equities and in a bad year you can expect your ‘growth’ portfolio to lose 30%.
"This is about providing clarity, simplicity and driving up standards in the industry. It will provide criteria that hopefully everyone can understand and help avoid mis-selling in terms of returns, volatility and potential drawdown. The amount of loss an investor can tolerate is as important as how much they can make."
Russell Bussy, a Step private client awards judge, is to act as an ongoing adviser to the service and will assist Step members and liaise with the investment management community.
David Harvey, chief executive of Step, said: "We believe that this is an opportunity to provide our members with powerful information about investment performance and risk. This is an area that has always been a real challenge and we are delighted to work with the Enhance Group Limited to leverage off their established experience and expertise in this area."
