Our Investment Philosophy
Investing a client’s money is a crucial part of the relationship between a client and their financial planner. Our view is that there are three constituent parts to arriving at the stage where advice can be given on a client’s existing and potential new investments.
Risk Profiling
Risk profiling is important so that any investment returns do not expose you to more volatility than you want. Research shows that when an investment returns falls below a certain level, and that level being outside of a clients risk tolerance, is when clients become unsettled and make detrimental changes to their long term planning.
For some clients the risk profiling of their affairs went something along the lines of “on a scale of 1 to 10, with 1 being under the bed and 10 being the 2 o’clock at Cheltenham, where would you say you were in terms of attitude to risk?”
Fortunately there are more scientific ways to address this issue and the most popular method utilised by Baxter Fensham takes the form of a questionnaire that combines the normal questions to ascertain your risk tolerance with a psychometric overlay to identify how you make decisions and how comfortable you are once they are implemented.
This has considerable benefits to helping your planner to construct a portfolio that is in keeping with your attitudes.
Asset Allocation
Almost every study into how performance is achieved concludes that asset allocation is the major component. Initially it is simply about how much money will be placed into each asset group (e.g. cash, fixed interest, property & equity). However as you burrow down into each asset class you need to do further asset allocation (e.g. in equities it could be how much is in small companies and how much in large companies.)
The reality for most clients is that the amount of money they have and the amount of risk they are prepared to, or want to take will determine the degree to which asset allocation is taken on their affairs. The extent to which it is decided upon at outset however is a different consideration to the regularity with which it should be reviewed. Each asset class has traditionally had a different performance level and they do not necessarily go up or down at the same time. It is therefore vital that you reappraise your asset allocation regularly to ensure it is in keeping with the objectives of your portfolio and the risk that your are prepared to take.
Portfolio Construction
We construct a portfolio suited to the customer's needs, goals, investment horizon and attitude to investment risk. The building blocks for the portfolio are institutional asset class funds, an excellent way to implement a diversified portfolio investment so as to maximise the probability of achieving the customer's goals.
The result of this process is a diagnostic report to maximise their probability for success. In addition to the above considerations, these recommendations take into account portfolio costs as well as the potential tax impact of the restructuring.
We will establish the highest probable expected rate of return for a given portfolio. We use this single percentage figure as the investment growth assumption within the client’s lifetime cashflow forecast. This is the most accurate method of measuring the customer's likely progress in achieving their objectives.
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Allocating your investments to the appropriate tax wrappers
With the asset allocation and portfolio construction established, we then make recommendations as to how your existing and future wealth should be distributed across the various available tax wrappers - ISAs, pensions, offshore investments, trusts etc. This will be driven by your current and future tax position concentrating on income tax, capital gains tax, inheritance tax etc.
Ongoing monitoring and re-balancing of your investments
It is vital that your portfolio is monitored on an ongoing basis to make sure its constituent parts are still the most cost effective, tax efficient and productive. Above all rebalancing to keep in line with your attitude to risk needs completing on a regular basis.
View the rebalance fact-sheet (opens in current page)
