RDR Fees

As with all highly anticipated events the RDR has come and gone and we are left with the reality of what we are going to do for clients in terms of price and service, which hopefully results in value? It could be cheap or expensive but it must strive to be good value.

Some individuals and even large institutions will have ensured compliance and window dressed services to retain commission “rates” in the form of directly billed fees. However, if this approach does not embrace the principles intended by the RDR then the value proposition will not be apparent to clients that are now increasingly aware of what advice does really cost.

What changes are you making to underpin your relationships in 2013 and make your recommendations more compelling for your clients? There are a range of business models for firms to stand out from the crowd. However there is little doubt that a well-considered investment methodology must play a part in delivering client value.

The Adviser and the Investment Supply Chain

While there has been a great push to achieve exam qualification and deliver the adviser charging business models across the board, many advisers still need to refine their management of the investment supply chain.

Going forward the bulk of adviser time is expected to be tied up in advising, processing and maintaining portfolios in terms of risk profile and client suitability yet many of the adviser services and support tools leading to their chosen investment solution remain disconnected in their application across the investment supply chain.

The RDR presents a distinct opportunity for the adviser as the primary owner of the client relationship and its unique bond of trust to link the stages of the investment supply chain.

Risk ProfilingRisk Profiling Tools

The message regarding client risk appetite and suitability has been well established. There are a variety of tools and service providers that work diligently with advisers to ensure that the client can be assessed and labelled effectively. While the FSA has highlighted many flaws in what has to be a very subjective process it is undoubtedly an improvement on the alternative client experience leading to investment in poorly matched investment products.

However, risk profiling tools appear to stop at the stage of pigeon holing a client in an alpha numeric risk spectrum with limited further direction in terms of mapping such risks to investment opportunities.

Investment Solutions 2Investment Solution Checklists

On a similar basis investment solution checklists or independence checkers perform a very necessary role of ensuring that the adviser does not fall in to a trap of pre-determining the client’s need or desire for a specific product. By applying a series of specifically designed questions the adviser is led to the doorstep of investments with a recommendation for an investment wrapper and solution.

Again investment solution checklists would associate the client with a risk appropriate investment vehicle or instrument but give little indication as the adviser heads in to the process of fund comparison, selection and recommendation.

Asset Allocation Model 2Asset Allocation Models

As we proceed, the message regarding the importance of asset allocation is being increasingly understood by the adviser. More and more industry professionals whether they regard themselves as financial planners, advisers or wealth managers appreciate their role as the asset allocator leading to the execution activity of the investment manager.

Asset allocation models deliver a variety of risk based portfolios that incorporate exposure to a range of asset classes and or markets. However, with their basis in historical merit and limited detailing of potential content such asset allocation models neglect opportunities for the adviser to be tactical with regard to market risk factors such as price volatility and relative performance across industry sectors.

Outsourcing Portfolio Management

There is no doubt in our mind that an adviser or wealth manager cannot be expected to micro manage investment performance for their clients. It is important that the day to day investment management is outsourced to a responsible and well researched portfolio manager.

However, the counter balance to this outsourcing process has to be the responsibility on the part of the adviser for the on-going suitability of the investment manager service in terms of absolute performance, relative performance and changing market risk in terms of price volatility. Each investment manager will continue to operate under the mandate provided by the adviser regardless of the relative performance of their niche market.

Creating an Efficient Investment Supply Chain

There is extensive evidence to show that the majority of efficient or effective investment performance is derived from allocating assets to better performing markets and industry sectors. The extensive time required to identify a high performance manager or individual stock may not justify the time and effort of the adviser on behalf of clients.

This is in effect good news for advisers as they are permitted to take a more strategic or tactical approach to asset allocation in the knowledge that they can capture sufficient investment performance to enhance client portfolios in the long term.

We use this principle as the primary driver for our own portfolio construction based on our unique analysis:

  • Using a long term asset allocation model we aim to vary our portfolio exposure around the long term averages, looking when possible or practical to capture positive trends and reduced volatility.
  •  We can set the principles for our asset allocation in a manner consistent with our client profiling and appropriate investment solution.
  •  More importantly once we have established a high level asset allocation we can the drill down in to the components of each asset class looking for the best opportunities for our client.

By taking a limited amount of time to identify markets and industry sectors that are performing relatively well we can then focus on an investment solution that contains funds with the same market or industry sector attributes.

The following tables are an example of the “drill down” process associated with our tactical asset allocation process. As a result the primary adviser tools in the form of the risk profiler, independence checker and asset allocation model are more easily connected to the investment outsourcing solution.

Very importantly our on-going analysis is not only applicable at the point of establishing the portfolio but also as part of the on-going review and maintenance process.



Week 52 end of Year- Macro Overview








Week 52 end of Year-Equity Sector Summary








TACTICAL STOCK ALLOCATION (for the Investment specialist)

Week 52 SetUP-Ftse 100






Keith Reid
Keith Reid
Keith’s training as an accountant and auditor has emphasized the importance of evidence in all good decision making process. The ability to monitor management processes effectively is a key to making the most of business opportunities. Both Keith and Gerry believe that this priority for capital preservation is the common principle that sets the framework for any sound investment strategy or business model.