Part of our role as Financial Planners is to recommend the investment portfolios which deliver on the objectives agreed with our clients.
We have a robust investment advice process which is designed to ensure we always provide suitable investment advice to our clients.
A few times a year, our Financial Planners and Paraplanners get together for an investment committee meeting.
This is an opportunity for us to review the performance of the investment portfolios we recommend, discuss the outlook for investments and agree on any changes to our approach.
We work with a third-party specialist who do a lot of the number crunching for us so we can consider their proposals.
Earlier in the week, Victoria spent a day with this specialist to hear their latest views on the market and plans to make some changes to the strategic asset allocations we use as a basis for constructing our recommended portfolios.
They take the view that conditions in markets have changed little over the year, with risk assets at or close to all-time highs and volatility levels continuing to be highly compressed by any historical measures.
There is no obvious signal in the market that this volatility position is going to change anytime imminently, although if further compression does materialise, valuations will become even more stretched.
During our investment committee meeting this morning, we discussed the various risks to investment markets, particularly the geopolitical turmoil surrounding North Korea at the moment. Uncertainties surrounding Brexit negotiations, and their possible impact on Pound Sterling, also featured in our discussions, as well as the likely scale and speed of any central bank relaxation of monetary policy.
We agreed with our third-party specialist that a degree of caution is in order due to these various factors. Therefore, we are adopting their proposal which includes a strategy of controlled de-risking, which will be reflected in changes to our asset allocation models from next week.
This strategy reflects a number of key themes, including increased global equity diversification, some reallocation to more developed equity markets away from riskier Asian and emerging markets, reductions to global high yield bond positions (in light of record low spreads versus government bonds) and some easing in corporate bond exposure too, and an increase in index-linked bonds for more cautious portfolios to address the risk of rising inflationary pressures in the UK.
We have some work to complete over the next week to update our models, populate these based on updated fund research, and back-test these positions to ensure they remain suitable for different risk levels.
Once these models have been updated and approved by our investment committee, they will be used as the basis for advice to our clients, for both new investments and during any portfolio rebalancing.
Also discussed at our investment committee meeting this morning was our approach to portfolio rebalancing.
This discussion was prompted by comments from a guest during a recent podcast interview, which resulted in a review of studies looking at best practice for portfolio rebalancing.
We concluded that our current approach to portfolio rebalancing – best described as ‘time-only’ rebalancing, where portfolios are rebalanced once every six months or annually – should be adapted to a ‘time and threshold’ strategy.
This updated approach means we will continue make recommendations to rebalance client portfolios following each review meeting, but only where portfolios deviate by more than a predetermined rebalancing threshold at that time.
The aim of this approach is to minimise the costs of rebalancing, including time spent out of the market and any tax charges incurred.
We are always looking for ways in which we can reduce the cost to investors and this updated rebalancing strategy will make a contribution to lower overall costs.
Whilst we continue to believe that Financial Planning makes a much greater contribution to the achievement of client goals, we are always happy to talk about our approach to investment management too and the role this plays in the service we deliver.
