22 May Your financial planner as your investment coach Part 4:
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Maintain the efficacy of the portfolio
Once a portfolio has been established, the next level of value that a financial planner delivers is often hidden from sight. Given that a long-term portfolio structure has been put in place, and best-in-class funds have been selected to execute the strategy, it is quite usual that from one period to the next, not much changes in a portfolio. It appears that nothing is going on from the adviser’s side. Some investors may even begin to feel that their financial planner is not doing much for their money.
Nothing could be further from reality. Behind the scenes a wealth management firm will have an Investment Committee that meets regularly to monitor how each fund is performing, look at any new funds that might compete for best-in-class status, review new asset classes and investment ideas using the same rigorous and disciplined process used to select the incumbent investments in the portfolio, challenge the philosophical view using the latest academic research, and finally reaffirm or propose changes to the portfolio’s structure or funds recommended. This list of activities is not exhaustive but represents some of the most important elements of effective investment governance.
In fact, a good rule of thumb is that the more complex a portfolio, the greater the number of funds used and the higher the level of activity that you see, the lower the chances of a successful outcome. Less is often more in investing, and a longer-term view is preferable to short-termism. As the renowned investment consultant and author Charlie Ellis states:
Activity in investing is almost always in surplus.
It is the discipline of the Investment Committee that stops clients getting sucked into investment fads and flavour of the month investment ideas.
When choosing how to invest, we consider all the available risk choices/options, read the research, understand the theory and review the copious empirical evidence that exists to help deliver sound recommendations to our clients. This is done in a comprehensive, fair and unbiased manner and largely handled within the Investment Committee.
Figure 1: Ongoing governance process, via the Investment Committee
Source: Albion Strategic Consulting
The process is continuously open to challenge. We keep an open mind, and a review of the latest evidence is undertaken on a regular basis as one of the agenda items for the Investment Committee. This is part of the reason why the solution we recommend to our clients begins and, importantly, continues to be at the leading edge.
With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning.
Important notice: This marketing communication is for information purposes only. Unless indicated, all views expressed in this document are those of the author(s). The information in this document does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it.