Part of our role as Financial Planners is to construct and manage investment portfolios designed to 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 each year, our Financial Planners and Paraplanners get together for an investment committee meeting.
This is an opportunity for us to review capital market assumptions, agree on adjustments the asset models we use, discuss the outlook for investments and agree on any changes to our recommended funds.
We also use this investment committee meeting as an opportunity to discuss broader investment-related issues.
On this occasion, we talked about improving the operational efficiencies within our team, as we continue to grow.
This is important because, during 2019, we expect to carry out more than 600 reviews on behalf of our clients, in respect of £320m of assets under management.
Because we operate on an advisory basis, seeking agreement from each client before making any changes to their investment portfolio, this growth in activities and assets can be time consuming and is something we will need to resource for accordingly as the firm continues to grow.
We work with a third-party specialist who do a lot of the number crunching for us so we can consider their proposals.
Their latest capital market assumptions update forms the basis of changes to asset models, which are then optimised for each risk level.
The team discussed these capital market assumptions for each asset class and agreed with the conclusions.
In terms of changes to asset allocations, a number of key themes were discussed and agreed.
We continue our long-term strategic objective to diversify globally, most prominently via equities, mainly non-UK developed markets. Diversification also continues towards global investment grade bonds.
Given the tightening monetary conditions, exposure to fixed interest in our asset models has now been reduced, particularly for global high yield bonds. Their inclusion now only appears within risk levels 6 to 8.
Allocations to property have been reduced to a maximum of 5% in order to minimise the correlation to equities. This is the result of changes to the calculation methodology used for this asset class, designed to reduce some liquidity risk associated with the commercial property asset class.
As part of the investment committee process, we also updated and reviewed fund research across each IA investment sector.
This fund research starts with the application of a quantitative scoring methodology, allowing us to identify those funds which demonstrate desirable attributes; consistency, strong risk-adjusted returns, and low costs.
We reviewed the results of this fund research for each asset class and agreed to retain the vast majority of our preferred funds. However, we decided to replace preferred funds in the UK equity income, Asia ex-Japan equity and global emerging market sectors, as a result of poor scores from the incumbents.
Also discussed within our investment committee meeting this month were the range of assumptions we use when building financial plans for clients, including price inflation, life expectancy and sustainable withdrawal rates in retirement.
Our updated asset models will go live later this month, and will be reflected in client review reports from the start of November.
As always, do speak to your Financial Planner if you have any questions.
