When we first meet with you we will ask you a wide range of questions to find out various facts about you. These questions are to ensure that we gain a thorough insight into:
* Your thoughts, views, goals and aspirations
* Your views on risk, volatility and capacity for loss
* Your personal and financial circumstances
All of these fact finding questions are a necessity to ensure we tailor our advice to meet your personal needs and goals.
We will look at when you want access to your money and how much flexibility you require with your money. We’ll also take into consideration your tax position long before we give you any investment advice. All of these factors will allow us to work out the selection of investments available to yourself. It’s important any recommendations on investments we make to you are as tax efficient as possible.
A tax wrapper has certain tax benefits, such as protection from Income Tax, Capital Gains Tax, Corporation Tax or Inheritance Tax. This could be a pension, ISA or bond, among others.
Once your financial goals and expectations have been established, along with the timescale, our knowledgeable financial advisers can begin to work out the most tax efficient ways to meet your needs.
We have trusted partners in the whole investment market place who offer a range of investment options, including:
We need to determine your thoughts and opinions on investment risk and capacity for loss, to ensure that investment opportunities we recommend for you meet your attitude to investment risk. To enable us to do this we will take into consideration the following range of factors;
The period of time you anticipate your investment to be over – it’s ‘term’
The amount of money you want available in ‘reserve’ should you need it to pay for those unexpected expenses, such as a broken central heating system
Your opinion on the potential for your investment earnings to grow
The amount of money you want to invest
If you have any debts
Savings you have already for retirement
Your overall opinion on investing
Whether you want to take risk(s) to achieve your goals and your capacity for loss
The impact of short-term falls in the value of your investments
The importance of protecting your investment from the effects of inflation
The question of ‘liquidity’: if you want to cash in your investments, how easy will it be to get your hands on your money?
To determine your approach to investment risk we’ll have to ask you a succession of questions. Every answer you give produces a score which is then totalled to calculate your personal tolerance for risk. This tolerance scale goes from 1 (low) to 10 (high). The number we calculate is called your risk profile score.
The risk profiling questionnaire we use is developed by Old Mutual in association with the leading actuarial consultancy Towers Watson, in line with the best industry practice and the guidelines laid down by our regulatory body, the Financial Conduct Authority.
Most of the terms often used to describe attitudes to investment can have different meanings, such as ‘cautious’, ‘balanced’ or ‘aggressive’. Because of this we will then explain to you what your risk profile score means.
After we have calculated your risk profile score we will discuss with you what it means. Your score gives an indication as to whether you are prepared to invest in investments which have a certain level of volatility. Investments can fluctuate up and down in the markets, this value fluctuation is referred to as their volatility.
If you have scored 1 in your risk profile score, this is low, which indicates we would recommend that you’d be best suited to investments such as cash or bank deposits which have a low volatility.
However if your profile score is 10, we would recommend a portfolio of investments which include emerging markets which have a higher level of volatility which also have greater potential growth in value.
We will need to discuss with you what your profile score means, to be sure you understand what the implications of this are on subsequent investment recommendations.
As well as this we’ll explain how investment growth and losses might be different between different levels of risk. This will give you a clearer indication of the outcome you could expect at each level. Through having this discussion with you it will enable us to agree whether your risk profile score is the same as your actual attitude to risk.
As our lives change so can our attitude to things such as risk and investments. We will carry out this same process at an annual review to see if your attitude to risk remains the same.
Asset allocation is all about creating a portfolio with the right balance of assets for you.
There are different asset classes available for you to invest in, these are;
Cash or money market investments
UK fixed interest
International fixed interest
UK equity and international equity
We will aim to create the right balance of portfolio for you because different types of assets perform in different ways. Our aim is to create the right mix of assets in your portfolio to optimise their return, taking into careful consideration your risk profile score and your growth expectations.
We base our asset allocation on models supplied by Towers Watson, the leading global professional service company who use long-established and proven sophisticated risk and analytics. Using the Towers Watson model enables us to plan, analyse and optimise a range of assets.
Even with our expertise and that of Towers Watson, we must point out that we still can’t guarantee that the volatility range of a particular asset allocation will not occasionally be breached. Exceptional market conditions can be created because of the possibility of unexpected external events.
When asset allocation is completed, we will choose the best investments for each asset class, in the correct proportion of the overall value of your portfolio.
These investment options are very wide, including; Hedge Funds, Exchange Traded Funds (ETFs), Unit Trusts and Open Ended Investment Companies (OEICs) .They aim to achieve different things, therefore our expertise and appreciation of how they perform and may perform in the future is an important factor in choosing the right investments for you.
Depending on your personal approach to investments we will make the judgement to make an “active” approach to investment management or a “passive” one.
An active approach is highly involved, where a fund manager will typically look at the price movements of their stocks many times a day.
A passive approach is where a fund manager will invest in a stock when they have faith in its potential for long-term appreciation (growth). The cost of active funds is typically greater than passives.
Given the volatility around stock market investments, we believe that carefully selected active fund managers will typically be able to identify opportunities for ‘out-performance’ – doing better than average. Nevertheless we believe that the passive approach is, on occasions, appropriate.
Fund managers performance could be judged on the success of their past performance. However this is not necessarily a true indication of what they may achieve in the future.
It is far better to assess a fund manager’s performance on; why they achieved that and what process they used.
When we select a fund for a client’s investment portfolio we will look at set detailed measures such as;
The amount of time the manager has been running the fund
The size of the fund
The amount of risk the manager has taken to achieve its performance
What asset class it represents within the client portfolio
In addition to looking at detailed measures, we will use a fund rating agency to give a qualitative assessment of a fund. We’ve chosen the Morningstar / Old Broad Street Research (OBSR) to assist us with this because their main focus is on those factors which will affect future performance of a fund, as well as looking at past performance.
The Morningstar / OSBR interviews many fund managers but only award a quality rating to approximately 300 funds across the different sectors, rating them Gold (previously AAA), Silver (previously AA), Bronze (previously A), Neutral (new) and Negative (new). To make sure we don’t restrict our choice of fund too much we will consider Bronze rated funds and above. However if the fund loses its rating we would review its viability and replace it if necessary.
As you can see, this combination of selection criteria enables us to confidently select suitable funds to build a strong portfolio.
Finally, when investing in any investment fund it is important to carry out the process of monitoring, measuring and evaluating the performance of your portfolio.
Over time the performance of various funds in your portfolio will differ. If your portfolio is left for a long length of time the different asset classes the proportion of funds represent could possibly change, resulting in a change from your original request and risk profile score.
We would agree a review date to report to you about your investment portfolio as well as completing a further risk-profiling assessment because as when important events in your life occur such as; when you get married, start a family or reach retirement age, your personal attitude to investment may change and affect your risk profile score. We can thus adjust the asset allocation of your portfolio as necessary.
Our investment committee meets quarterly to review and assess our portfolios performance and their component funds.
Any outperformance of funds will be noted and underperforming funds will be investigated. The same measurable criteria used in the fund selection process are used to assess funds.
We will contact you to ask you to authorise any changes to funds within your portfolio if our committee feels it is necessary to change a fund due to its performance.
Portfolio valuations are available at any time by logging into your personal client site.
Please contact us by clicking here. We know that the information we will provide you with in our initial, no obligation meeting will pay for your time, plus more. Alternatively call us on Chester 01244 322 330.