When it comes to making recommendations as to what to hold in portfolios, clients often only see a small part of a complex and lengthy process that must be not only comprehensive and consistent but also flexible and reactive to changing World conditions. Of course, it is not the client’s job to analyse markets and make decisions – and we would not expect them to – but it is important for us to help them understand concepts by conveying what our process is and to provide confidence that we have undertaken the necessary due diligence to make our recommendations.

With this in mind, we felt it was time to provide a “look under the bonnet” at what drives our processes and decisions, how we formulate our ideas and the safeguards that we use to try and protect ourselves from our ego and the psychological biases that have led many investors to make serious errors.

Our Process

The following graphic provides a high-level overview of our process highlighting each stage and how one leads on to the next; creating a cycle that hopefully leads to positive results and ongoing improvement.

Reading books and understanding financial history provides a long-term view and helps the reader see the bigger picture. Similar signposts telling us what direction we are headed are usually repeated through history but not everyone pays attention to them.

Learning & Education

Financial Planning Wales has made a big commitment to personal development, through professional qualifications and regular reading – we have an extensive library on all things financial! Reading books and understanding financial history provides a long-term view and helps the reader see the bigger picture. Similar signposts telling us what direction we are headed are usually repeated through history but not everyone pays attention to them.

1. This Time is Different by Carmen M. Reinhart & Kenneth Rogoff / 2. The Ivy Portfolio by Mebane T. Faber & Eric W. Richardson / 3. Value Investing by James Montier / 4. The Ascent of Money by Niall Ferguson / 5. The Laws of Wealth by Dr Daniel Crosby

Every week Jon and I also wade through articles and publications from sources that we respect and have shown to provide accurate and timely analysis over the years. This includes ones that may have a vastly different view of the World to us; we make a point of not going looking for information that supports our position, we also want views that challenge our way of thinking and make us ask questions. Each of us then publish our findings for others to read as Investment Diaries – mine with a greater emphasis on the outlook for markets and Jon’s looking at different Investment providers and the funds that they offer.

To supplement these Investment Diaries, we also produce monthly Monitoring Notes that look at key indicators for different asset classes and what this potentially means for each of them.

We have tried to make the process as formulaic as possible; asking key questions that require an answer of positive, neutral, or negative means that at this stage we provide evidence only. The table below shows an example of seven technical indicators we look at; here we see three positive, three neutral and one negative providing an overall view of neutral – no debate, no narrative!

Whilst the Monitoring Notes provide an overall view for asset classes and geographical regions, we also delve deeper into the investment vehicles that we could use to access them; standard searches that provide key data points mean we can quickly provide evidence for analysis on performance, asset allocation, peer comparison and costs.

One of the major problems that we face is too much data; by formalising our process for collecting evidence and putting it together in a format that is easier to analyse we aim to avoid information overload that can lead to decision paralysis.

Analysing & Testing

Armed with our data we can start to undertake some serious analysis; some decisions maybe relatively easy - our Momentum Strategy is a simple automated buy or sell decision based on moving averages – others are more complex.

Our recent Asset Allocation Note (available on request, just drop us a message) looks at inflation and the potential impact that this could have on different assets if it is transitory or more persistent. This had to be a more in-depth study as for almost forty years we have seen falling inflation and interest rates, pushing them to the historically low levels that we see today; but that has not always been the case…..

The 1970’s that saw the Three-Day Week and Winter of Discontent was the last time we saw inflation get out of control and it was not until the mid-90’s that we finally saw it tamed.

Based on our findings we established that Basic Resources, Mining and Real Estate all did well subsequently following periods of rising inflation; as a result, Jon looked more closely at funds in these sectors to see how we could access these themes providing further information for the next stage.

Discussing & Deciding

Armed with this evidence and analysis we then start having discussions about how to proceed and what changes if any need to be made to the Model Portfolios that we recommend for different risk profiles. We have found through sharing, collaborating, and sometimes disagreeing we make more effective decisions. These decisions include whether holdings are increased, decreased, added, or removed altogether; again, testing the impact that any changes would have on existing portfolio asset allocation.

It is common to see firms or advisors place constraints on portfolios, requiring minimum or maximums within a sector or a fund; whilst a large holding of more than 10% would certainly need to be well justified we are more interested in the effect a change has on the overall portfolio. The inclusion in a Defensive Portfolio of what some might consider a “risky” asset could be justified if it does not alter the return profile outside of the appropriate parameters.

The focus on potential outcomes for a portfolio as a whole means that we do not have to exclude assets that could offer real value and potential strong future returns for portfolios as individually they may look too volatile or be perceived as too high risk.

Each month we then produce our Investment Committee Report that summarises all our evidence, analysis, discussions, and decisions - writing down how we have arrived at a decision means that we can later see how effective they were and look at what went right and what went wrong. It is important to remember no matter how good your process and how diligent you have been it is not a guarantee for success!


Since 2015 we have maintained sample Model Portfolio’s that allow us to monitor and demonstrate the returns our process and decisions have generated over time; something that we can show to clients and help them to understand what to expect from different risk profiles as it is these models that will be applied to their own investments to help them achieve their objectives.

Communicating changes effectively to clients is crucial and we constantly endeavour to keep everyone updated with our thinking and any changes that we have planned. There is a lot of information, including regulatory documents, that must be provided and ensuring clients have a concise summary of this to help them understand our recommendation and how it first with their circumstances.

We always encourage feedback and questions from our clients, providing them with as much information as they want; this hopefully means they “stay in touch” with their money and at the same time provides us with an opportunity to learn whether we are communicating effectively and whether we can do better.

Reviewing Outcomes

The final stage of the Investment Process is to analyse actual results, asking ourselves some key questions.

  • How have actual client portfolios performed?
  • Have they performed in line with Model Portfolios?
  • Is the risk and return profile as expected?
  • Are individual holdings performing as anticipated?

To do this we use a combination of Model Portfolios Reviews and Investment KPI (Key Performance Indicators) that provide us with evidence and the opportunity to analyse our strategies and choices. This information then feeds back to the start of our process and acts as evidence in the next Learning & Education part of our process.

This ongoing cycle we hope provides us with plenty of opportunity to learn and continue to develop our process and ourselves with the continued aim of improving outcomes for our clients.

final thoughts

Our process has been developed over more than a decade and will continue to evolve as time passes and the investment and economic landscape changes; through regular reassessment of our approach and the results we hope to continue to learn and improve outcomes for our clients.

Financial Planning Wales Ltd is Authorised and Regulated by the Financial Services Authority. We may record or monitor phone calls for training and quality purposes. The details and material published in this article should not be considered as advice and has been prepared for informational purposes only without regard to your individual investment objectives, financial situation or means