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.
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.
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.
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