With RDR on the way and adviser charging on everyone's mind, Laura Dew talked to some leading Financial Planners about how they select funds for their clients, their investment stratagies and why increasing numbers favour low cost investments.
While it is taken as given that most IFP members and Financial Planners are following the six-stage process for Financial Planning, the specific ways in which Financial Planners choose the most appropriate funds for their clients are less defined.
With this in mind, this month we questioned five leading Financial Planners from a variety of firms to share their best practice ideas and their tips for effective investment and fund selection.

Fund managers
The majority of advisers said they preferred using passive funds in their portfolios, reducing the use of fund managers. Active fund managers did not garner much praise from Lee Dunn CFP^CM, senior Financial Planner at Paradigm Norton, who was negative about their abilities to out-perform the market. He and other planners also disliked the high fees they charged clients and the lack of evidence that they were performing on a consistent basis.
Some firms said they had switched from active funds to passive funds over the past few years, citing low-cost as offering better long-term value for clients.
A survey by Schroders in December, questioning 225 advisers, found that 53 per cent of advisers expected to use more low cost funds in the future as a means of reducing the total expense ratio payable by clients.
Robin Stoakley, managing director of UK intermediary at Schroders, said: "With the introduction of RDR, advisers will be keen to keep costs low and as a result we expect to see low cost funds rise in popularity."
Alan Smith, chief executive of Capital Asset Management, echoed this sentiment. He said: "Our criteria is mainly really low cost funds, ones with an annual management charges of less than 0.5 per cent. Most funds charge too much so having low costs funds benefits our clients as they pay a lot less in fees."
Other advisers have cut costs by seeking institutional funds rather than retail funds. Particularly favoured funds were those from Vanguard and Dimensional, which are known for being particularly low-cost and marketed at advisers rather than at a consumer audience. The American firms have been around for nearly 30 years and are favourites among IFP members. So much so that both firms are now sponsors of the Institute of Financial Planning.
Mr Dunn said: "They are not household names but they deserve to be. If there are better investment companies in the world offering better value for their clients then we are yet to discover them."
He cited the firms' value, methodical investment approach, trustworthiness and low costs as features which made them stand out from the crowd.

Rating agencies
The use of investment rating agencies to help with fund selection appeared to divide Financial Planners. Some favoured them, citing the fact that they were professionals in that field while others doubted their judgement. There was also criticism of the fact that not all funds were included in the ratings.
The Schroders survey, however, found that 80 per cent of advisers were using fund ratings to assist with their fund selection.The most popular were from OBSR and Trustnet followed by S&P.
Some 30 per cent of advisers questioned said their use of fund ratings had increased over the past year compared to three per cent who said it had decreased. Mr Stoakley said: "The introduction of RDR has placed increasing pressure on advisers so I am not surprised they are looking more closely at tools such as fund ratings to help with fund selection. This is a trend we expect to continue."
The topic was discussed at the recent Morningstar Investment Conference 2012 in London where a series of panelists including Nick Cann, chief executive of the IFP, debated key influences on adviser decision making.
Katrina Lloyd, editor of Investment Week, said she often included in her publication smaller funds which were performing well but often they went unnoticed by readers. This led to a comment by a delegate who agreed, saying: "It's so easy to utilise OBSR as your universal investment tool but there are so many other funds which, for whatever reason, are not on there so you can miss so many other options. It doesn't cover the entire industry."
OBSR (Old Broad Street Research), now part of Morningstar, currently has 561 onshore and offshore funds on its system which are rated on a qualitative forward-looking basis. Funds are filtered according to rating, investment style, fund management group and IMA sector and given a rating of gold, sliver, bronze, neutral or negative. Other rating agencies include S&P, Trustnet and Defaqto.
Sylvia Bentham CFP^CM is one planner in favour of the ratings. She said: "I use OBSR to choose investments and find them very good. I'm not a fund picker so it makes sense to outsource that part of the process to an investment professional who is doing that everyday. I used to pick funds myself many years ago before the systems were available but then the internet came along and OBSR standardised the approach."
Others were more sceptical about the abilities and reliability or ratings agencies. Mr Smith said: "We don't use any ratings systems as they are usually based on past performance and there is no evidence to suggest past performance has any correlation with future performance and therefore most ratings which use this criteria are flawed."
Future performance was a topic similarly mentioned by Justin King CFP^CM who likened it to supporting a Premier League team. He said: "Tracking a fund is not as easy as following Manchester United and saying they won the Premiership this year so there's a good chance they'll win it next year too."

Recommendations
So what do Financial Planners recommend as sound investment practices? One of the most common tips given was regarding asset allocation and the importance of having a diverse portfolio.
Robert Hudson CFP^CM, director at Manse Capital, said: "In my view far too much time is spent focusing on fund managers when in fact, asset allocation is key. Some 90 per cent of the research you will find shows performance is down to asset allocation rather than the ability of the fund manager."
Mr Dunn said: "I don't recommend market timing, buying in before rising markets and selling out before major bear markets; investors can pull that off once or twice (whether through luck or judgement) but it is a ultimately a losing strategy over the long term because it requires the repeated ability to forecast the unforecastable and that's not going to happen."
Widely-used tools mentioned by many Financial Planners included FE Analytics, Trustnet, which is also part of FE, Lipper Research and Morningstar Adviser Workstation. Morningstar is a sponsor of the IFP.
Ultimately, Ms Bentham summed up the importance of investment selection as many planners see it by saying that rather than looking to achieve high rewards or rapid gains, it was more important that clients were kept at the heart of any investment strategy.
She said: "My strength is as a Financial Planner. What I do is create and deliver a financial plan for my clients' needs which will save them money; an individual fund does not, of itself, make an investment strategy."