Finally we will put these plans in place. We will agree at outset on any given goals, and what sort of service you would like from us for the future. This can be an annual review or, if the circumstances are such, a more frequent meeting schedule. Once we have agreed on how you would like us to act on your behalf, you will be able to enjoy the good times and be confident that, even during the times of challenge, we will be there to assist.
We will sit down and discuss the ways in which we may be able to help you fulfil your objectives. This would include ways of managing your assets, with you having a thorough understanding of the portfolio design and construction. Or, a financial plan to meet any specific objectives you may have. We will go into as much detail as you wish.
We will find out what is important to you; your goals and aspirations, however straight forward or complex. We want to know how you would like your personal affairs looked after. We will also talk to you about areas we feel we may be able to add value, from managing your assets to a range of financial planning ideas.
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As with many things in life, increased risk can lead to increased reward. However, this is not always guaranteed and this is especially the case when investing money. We believe that the returns we generate should be commensurate to the level of risk taken. Risk taken that is not rewarded by higher returns is simply inefficient.
As a Financial Planning firm, we focus not just purely on investment returns, but on achieving goals or financial objectives. The highest possible investment returns are always desirable, but chasing this may come at a cost – increased risk could lead to increased losses. It is our job to help ascertain the returns required to meet specific objectives, and marry these returns to the risk clients are prepared, and more importantly, can afford to take. Often objectives can be met through other forms of financial planning, reducing the need to take excessive risk to chase higher returns.
It is also part of our role to manage expectations and emotions. During rising markets, it is natural to feel comfortable investing additional funds or taking more risk, while during falling markets the opposite is true. It is also useful to be reminded that markets falling is not an uncommon phenomenon. Market fluctuations are part of the investment process and over time, a well-balanced portfolio will recover its losses. We have been through multiple investment cycles and as such, have the experience and understanding to take the emotion out of investment decisions. This ensures that clients’ long-term objectives remain our priority.
In order to generate consistent risk adjusted returns, the bedrock of our philosophy is diversification. We diversify portfolios across asset classes, geographic regions, sectors and differing investment styles. While not all risk can be eliminated through diversification, some types of risk can be significantly reduced if diversified correctly. We are aiming for a portfolio constructed largely of uncorrelated assets – assets that move in different directions during different times.
By diversifying sufficiently, making long term strategic calls and short term tactical calls we are aiming to limit large falls in the value of portfolios during market downturns, while capturing as much as possible of any market upside.
It is important that clients fully understand all the costs of investing through our managed portfolio service. In order to maintain the trust we have earned we are fully upfront and transparent when it comes to costs.
We do not shy away from our charges as we strongly believe they reflect the ‘added value’ throughout the investment process. A study by Vanguard, a large U.S. Fund Group, looked at the returns an investor might generate on their own versus the returns they may generate using a financial planner offering the full suite of planning services we offer. They concluded that across seven key areas, financial planners can add around 3% per annum[1], more than compensating for the charges levied.
[1] Vanguard Research (September 2016). “Putting a value on your value: Quantifying Vanguard Adviser’s Alpha in the UK.”
Our investment approach is based on our strong belief that if money is actively managed, long term out performance can be achieved. We therefore take an active approach to investing by allocating money across each asset class and sector based on our extensive research.
There has been much debate around active management (where a manager tries to beat the market) versus passive management (simply following the market), with some arguing that markets cannot be consistently outperformed so a low-cost passive approach should be adopted. There are numerous examples that contradict this argument. While it may be true that on average active managers do not outperform their sector (half will outperform and half will under-perform), that discounts the ability to move between fund managers and ignores the managers who have consistently outperformed over the long term. That said, there are some markets where active managers do struggle to consistently outperform the index (for example U.S. Large Cap Equities). In these circumstances we are happy to track a market through a low-cost index tracker.