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Managing a Business/Investment, Security and Portfolio Management


1. Assume that you are a dealer of NSE and BSE. If an investor or group of investors approaches you for a valuable advice of investing several lakhs through your dealership network what will be your advice? Explain the strategies.

2. How would you characterize the behaviour of the stock during the period [e.g. aggressive, neutral, defense etc.] relative to the market? state why, in terms of:
a. Underlying statistical relationships, and
b. Company basis[e.g. product, service, operations and financing]

3. Imagine that the stock market has been declining. A technician is looking for signs of an upturn in the market. what sorts of readings should he be expecting from
a. Breadth of the market
b. Volume of trading
c. Odd-lot trading

4. you are attempting to construct an optimum portfolio. Over your holding period, you have forecasted an expected return on the market of 13.5 percent with a market variance of 25 percent. The Treasury security rate available is 7 percent[risk-free]. the following securities are under review:

Stock          Alpha   Beta   Residual Variance
Boeing          3.72    0.99         9.35
Bristol-Myers          0.60    1.27         5.92
Browning-Ferris          0.41    0.96         9.79
Emerson Electric          -0.22    1.21         5.36
Mountain states telephone  0.45    0.75         4.52

I  will send  the balance  asap.

Question:   1.Assume that you are a dealer of NSE and BSE. If an investor or group of investors approaches you for a valuable advice of investing several lakhs through your dealership network what will be your advice? Explain the strategies.

1.Assume that you are a dealer of NSE and BSE. If an investor or group of investors approaches you for a valuable advice of investing several lakhs through your dealership network what will be your advice? Explain the strategies.  

 PPORTFOLIOThriving under RDR
Thriving, not just surviving, under-RDR will require a robust and
systematic investment advice process. Such a process can help you to:
„„ Have more satisfied clients.
„„ Build greater business value.
„„ Avoid creating business risks.
This guide introduces the basic concepts needed to help you develop a
process based on lessons learned from thriving fee-based advisers both
here in the UK and in other countries with many years’ experience with
fee-based advice models.
Thriving under RDR
Thrive, don’t just survive
The Retail Distribution Review (RDR)
signals a significant opportunity for
prepared advisers. Adopting a systematic
approach to financial planning and
portfolio construction offers you the
opportunity to add value that is not solely
dependent on investment performance,
which is often outside your control.
Control regulatory and legal risk
Taking a structured and disciplined
approach to the investment advice
process can avoid a build-up of risk
within the practice – risk which isn’t
always visible. A systematic process
leads to transparent and consistent
client outcomes, which helps to manage
risk because you can demonstrate the
systems and controls to the regulator and
your clients.

Use your process to sell your
Rather than an onerous chore, having a
process in place actually helps you sell
your service. With trust at a premium in
the financial services, being able to show
your clients that you have a rigorous
process which helps control risk and
systemised investment planning will go
far to help build that trust.

Create long-term business value
Having a systematic investment planning
process can result in sustained value
creation for an advice practice. If you
base your client proposition on goals and
outcomes which are within your control
– rather than investment performance,
which isn’t – it’s more likely to lead to
satisfied clients, willing to pay ongoing
fees for long-term advice. And having
satisfied and engaged clients leads
directly to long-term business value.
See our six-part series called Creating a
successful fee-based advice practice for
an in-depth discussion of how to create
long-term business VALUE.

S Consistency requires strong
organising beliefs
You should be able to demonstrate to
clients and regulators alike that you have
a strong investment philosophy in place,
based on research and knowledge,
showing that you are working to that
belief system in the interests of clients.
You should be able to demonstrate
with an objective process/framework/
motivation how you arrived at a given
investment plan and populated it with
certain investment products.
‘Statement of Investment
You can use a formal ‘Statement of
Investment Principles’ to set out your
firm’s beliefs and approach to investment
management. In other words, how you
assess risk, allocate assets, choose
managers and review portfolios.
The point of this document is consistency
across client experiences and adviser
practice. Clients should experience a
firm, not an individual adviser. If they
moved from one adviser to another
within the firm, they should get exactly
the same outcome from the process.
The individual client’s investment plan
would then explain how your firm applies
these principles to that client’s unique
See the appendix, pp. 52-53, for an
example ‘Statement of Investment

„„Review of client’s financial position
„„History, values, transitions goals
„„Goals-based planning
„„Categorise and evaluate
„„Determine risk/return requirements
„„Develop a written plan


„„Strategic asset allocation
„„Sub-asset allocation
„„Passive/active mix
„„Asset location
„„Manager selection


„„Best execution
„„Tax efficient trading
„„Automate rebalancing


„„Periodic financial check ups
„„Significant life events
„„Review progress

1. Know your client In a comprehensive and systematic process, this requires that you understand your clients’ ‘real intent’. Financial planning
exists to help people meet specific life goals and it’s your job to understand them and help clients achieve them.
2. Develop a plan The planning stage involves formulating a comprehensive financial plan based on the goals and risk profile of the client.
This needs to be written down and agreed with the client.
3. Construct a portfolio With a clear understanding of your clients’ goals and profile, a systematic process calls for a top-down approach to
portfolio construction, starting with strategic asset allocation, through to manager selection.
4. Implement the plan Implementing the plan can then be fairly automated to ensure best execution, tax efficient trading and scheduled
rebalancing to avoid the portfolio drifting out of alignment with the client’s goals and risk profile.
5. Monitor progress Regular check ups and progress reviews ensure that the plan stays on track. Should anything change, such as a
significant life event, the process might start over by checking against the goals and life situation, and a subsequent
adjustment of the financial plan. But remember, if it’s not broken, stay the course!

1. Know your client
A solid client/adviser relationship rests on mutual understanding.
This starts with an in-depth evaluation of the client’s situation, where

they’ve been and what they really want to achieve financially. For
example, not many clients yearn to own a pension, but they do want
the financial independence that a properly funded pension will bring.

Part 1: Establishing the adviser relationship

All relationships are based on trust and knowledge. Changing your clients’ perception
of you from service provider to trusted financial partner requires the highest level of
client knowledge. The most successful fee-based practices ask just as many qualitative
questions as they do quantitative ones. They seek to find out their clients’ real intent, not
just their financial intent. While this may not suit all advisers’ style, the most successful
firms use these questions to demonstrate to their clients that they understand them as
people, not just their finances. They put in practice the knowledge that trust is the basis
of any long-term relationship.

tart          with a set of guiding principles Start with a set of guiding principles Start with a set Try asking one or more of these questions
to spark a conversation with your client.
You may be surprised by what you learn.
„„What was money like growing up?
„„How do you define financial success?
„„What is the biggest financial concern
you are facing in your life right now?
„„What is a goal you have yet to
The resulting conversation can be
incredibly insightful and begin to build the
kind of mutually satisfying adviser / client
relationship that will benefit both you and
your clients. Moving to the role of trusted
adviser requires a deeper examination
of your clients’ lives from a number of
different perspectives as outlined on the
following pages.

Life history
Life history has always played a dominant
role in shaping individual attitudes. In
fact, most individual attitudes and beliefs
about money are shaped by childhood
experiences. What people, places, or
events have shaped your clients’ attitudes
toward money? Understanding their
satisfaction with their financial past gives
you a backdrop to their financial story.

Financial satisfaction
Satisfaction can be defined as a feeling
of fulfilment and contentment. It often
depends on your clients’ definition of
success. Therefore, evaluating your
clients’ level of satisfaction with their
financial life depends more on emotional
than material factors. Use a detailed
questionnaire to examine the level of
financial satisfaction in your clients’ life
and help determine what areas of their
financial life need immediate attention

Life principles and values
Life principles and values include all of the
attitudes and beliefs that help individuals
navigate through life. Understanding
your clients’ underlying principles and
beliefs that relate to their life and attitude
towards money is critical to building a
financial plan that aligns with their belief
system and will help ensure they are
happy and engaged with the plan.
Life stage and transitions
Life transitions are planned or unplanned
life events that involve the movement of
money. Once you better understand your
clients as individuals, you can focus on
the events in their lives that may have
financial implications
Life goals
Work with clients to identify their
aspirations in greater detail, then prioritise
and plan for them accordingly. By
understanding how specific goals fit into
the larger picture of your clients’ lives,
you can work together to better align their
financial goals with their guiding principles
and beliefs. You can apply a goals priority
matrix like the one below to put those
goals in perspective and decide their
relative importance.
Goals-based financial planning
The ultimate purpose of investment
planning is to achieve your clients’ life
goals, in other words, the end of the
means. Different clients will have different
financial goals, both as a whole and with
individual parts of their financial whole.
A true financial planner is in the goals
achievement business, not the investment
business. Throughout the process and life
history of your clients, every action you
take and plan you make should hinge on
helping your clients achieve their goals.
Likewise you should measure progress
against the clients’ goals, rather   THAN     
some unrelated performance target.  and transitions
Part 2: Gather financial information
The second part of knowing your client
resembles a traditional fact find. It goes
beyond time horizons and risk profiles into
greater depth on a client’s current state,
behaviours, family situation goals and
progress to dat

Current financial situation
Start with your clients’ total net worth in
the form of all static assets and liabilities,
e.g. personal balance sheet. As a separate
sub-section you will also need a detailed
breakdown of their current investment
portfolio. Finally, generate a cash flow
statement for them comparing all income
and expenses.
See the appendix, pp. 59-60, for
simplified examples of a personal balance
sheet and a personal cash flow statement.
Financial goals
In the first section, we looked closely at
clients’ life goals. With those in hand,
you can begin to drill down to specific
financial objectives and categorise them.
These include details on retiring, buying
a new home, or saving to send a child to

Progress to date
You can now make a preliminary
assessment of clients’ progress towards
their goals. Map the current state to the
articulated goals and identify any gaps.
How ready are they to retire? Run a
straightforward simulation of expected
retirement income. Compare their liquid
assets to their liquidity requirements and
see how they fare. This information will
form a key component of the plan you
eventually develop
You may need to assess the
reasonableness and achievability of their
goals and educate your clients to adjust
their goals or habits as needed. You will
need to prepare them to begin to adjust
their savings and spending habits or
restructure their investment portfolio.

2. Develop a plan
A clear, written plan is crucial to the success of a systematic
investment process. It will help you:
„. define a portfolio’s purpose.
„. measure its success at fulfilling your clients’ goals.
„. establish and strengthen your client relationships.
„. clearly articulate your client promise and deliver more consistent
„. protect your clients from the negative effects of emotional decision
making that can undermine investment portfolio effectiveness.
This section takes you through the process of evaluating the gathered
data and using it to write an effective investment plan.

Part 1: Categorise and evaluate the data

The following framework provides a useful way to categorise the different types of
information you gathered into categories that will help structure and inform your clients’
Focus on risk and return
The risk and return sections of the
framework deserve particular attention.
They define the after-tax return
requirement consistent with acceptable
risk tolerance and the clients’ financial
goals. However, clients don’t have just
one ‘risk profile’. They have different
risk/return requirements or profiles for
different goals. You will need to define the
return requirements to reach critical and
discretionary goals as they will differ both
in priority and time horizon.
An important but often overlooked aspect
of risk and return is defining these two
critical factors in ways that resonate with
clients. You can present the return side
of the equation in terms of expected
return, expected retirement income
and the historical probability of reaching
their goals. In the context of historical
asset class returns you should carefully
explain the risks to your clients in real
and meaningful ways, including volatility,
shortfall risk and maximum loss.
Part 1: Categorise and evaluate the data
Return Determine income, capital appreciation and total return required to meet client
Educate clients to set and achieve realistic expectations, including the importance
of saving more and the requirement to rationalise and prioritise goals.
Risk Determine clients’ ability (financial) and willingness (psychological) to take risk.
Understand how clients view risk, including risk of loss, risk of not meeting critical
financial goals, maximum threshold for portfolio volatility etc.
This is where a standard risk profile questionnaire comes into the process.
Time Determine the investment time horizon for each goal or goals. This may be a
single-phase goal such as retirement; or multi-stage goals such as an emergency
fund, first home, children’s education, accumulation for retirement, retirement draw
down. This may imply dividing the portfolio in to different pots, each with their own
horizon and risk/return profile.
Tax This includes the location (such as in a pension or tax wrapper) and the types
of investment assets and accounts. It includes a consideration of capital gains
thresholds and income tax band.
Liquidity Define the amount of assets or portion of portfolio that must be liquid at all times,
as agreed with the client and driven by things like short-term investment goals,
emergency fund requirements and risk tolerance.
Legal Determine any legal considerations. This includes an understanding of the relevant
regulatory requirements that govern the adviser-client relationship and the nature of
the services you provide
Unique Take into account any out-of-the-ordinary circumstances that apply. These include
divorce, terminal illness, job loss, dependants with special needs.
Part 2: Develop an ‘Investor Policy Statement’
Institutional investors manage their
investments based on a written
agreement, sometimes called an Investor
Policy Statement (IPS). Successful advice
businesses have adopted this practice as
part of their investment advice process.
Each client’s IPS should reflect your firm’s
Statement of Investment Principles. The
IPS states explicitly how you are applying
your investment principles to the individual
client’s circumstances, investment
timeframe and goals.
Defining goals and measuring
The IPS defines the purpose, objectives,
and measures (Key Performance
Indicators) of success for your client’s
investment portfolio. It also summarises
the agreed investment strategy. Having
a written plan in place helps establish
productive communications and set
expectations with clients. This can be
especially useful when markets go
through inevitable periods of volatility as
it can help focus the clients’ attention on
long-term goals, rather than short-term
market noise.

Managing risk
Developing an IPS with your clients lays
a solid foundation for the relationship,
fostering trust, confidence and
understanding. It also helps to avoid
misunderstandings that can lead to legal
and regulatory risk. If you can show
that all your decisions adhered to the
tenets of an explicit and well-crafted IPS
informed by your Statement of Investment
Principles, be it to the regulator, or in a
worst-case scenario a court, it may be of
great help.

Writing the IPS
Now you’re ready to convert all the
information you’ve gathered into an IPS
to agree with your client. Again, each
of these categories should flow from
your Statement of Investment Principles
as they map to clients’ individual
circumstances, investment timeframe and
Summary of investor and circumstances, personal preferences and constraints,
including any tax, legal, or regulatory issues.
Goals Clearly state the goals and time horizon of the portfolio. This should include any
benchmarks that apply to monitoring progress towards the goal(s).

Risk/return requirements
Define the return requirements and the agreed level of risk (based on their risk
profile balanced by return requirements) needed to achieve those requirements.
Include any ongoing income distribution needs from the investment portfolio, and
other liquidity concerns stemming from withdrawals from the portfolio.

Allowed investments
Define the permissible asset classes and investment types, including any
constraints or restrictions, e.g. ethical funds etc.

Asset allocation policy
Include allowable asset classes, sub-asset classes and target strategic asset
allocation, including all ranges and targets.

Diversification policy
Define the required diversification and tolerances for drift.

Rebalancing policy
State how often a portfolio will be rebalanced if following a time-based plan, or
what the trigger will be if you’re going to rebalance based on changes to the asset
allocation that results from market movements.

Monitoring Define responsibilities regarding how the portfolio and performance will be
monitored, reported and controlled.

Relationship Clearly defining the client-adviser relationship should probably also be documented in the governing document.

3. Portfolio construction
Taking a top-down approach to portfolio construction can help
redefine the client-adviser relationship and fits well within a post-RDR
framework of financial planning in a fee-based environment.
A top-down approach results in portfolios mapped specifically to
clients’ circumstances, attributes and financial goals.

Take a top-down approach
When it comes to building a portfolio, some individual investors focus on selecting the
right fund manager or fund. However, manager selection forms only a small part of the
portfolio-construction process. A top-down approach calls for building client portfolios by
starting with asset allocation based on clients’ goals and risk tolerance for each goal, then
proceeding to populate the agreed asset allocation with manager selection as only the
final step
Bottom-up approach
can result in haphazard
outcomes, as well as
misalignment with
client objectives and
risk profile
1 Asset allocation
Asset allocation – focus on risk and return
Several studies have shown that the most
important decision when constructing a
portfolio is asset allocation. This means
making sure the portfolio has the right mix
of assets to suit your client’s individual
circumstances, investment aims and
attitude to risk. This is where you can use
traditional tools such as model portfolios
to help determine the basic building
blocks of the portfolio. The risk-return
profile will determine this at very high
levels, but don’t overlook the importance
of diversification at asset allocation level.

Asset class performance over time
Depending on things like changes in the
overall economy and even investment
fashions, the best and worst performing
asset and sub-asset classes continually
change. For example, growth funds may
perform well compared with income
funds during economic booms and viceversa
when the economy is slower.

The chart puts this into context, showing
how various equity sub-asset classes
performed between 1994 (the first year
that separate data for growth and value
styles became available) and 2011. The
numbers show their ranking from best (1)
to worst (6) for each year since 1994.
This is why it’s so necessary to diversify
across different asset classes. Since
it’s difficult to forecast which sub-asset
class or classes will be next year’s
winners, it makes sense to hold a spread,
proportionate a client risk/return profile,
rather than trying to pick the next big

Adviser as ‘behavioural coach’
Using an asset allocation strategy helps
free your clients from the risk of following
dangerous investment fads. Even
professional investors get their timing
wrong, following the herd into a hot asset
or market that has reached its top and
may fall dramatically. In a sense you are
acting as your clients’ behavioural coach,
keeping them from making emotional
decisions and ensuring that their portfolio
stays balanced and in line with their riskreturn
profile. Please see our separate
adviser guide, Behavioural Finance for
more details on this topic.

Sub-asset allocation – focus on diversification
Once you’ve decided an overall asset
allocation, you need to decide on subasset
allocation – that is, how you divide
the portfolio between the sub-assets,
or different kinds of asset within each
asset class. For example, a sub-asset
class within equities might include large
companies, smaller companies, growth
funds, income funds and global equities.
Just as when you combine the major
asset classes, diversification is essential
when choosing sub-assets. It helps to
ensure that you don’t add too much risk
by concentrating in a particular sub-asset
class. In some cases, you may decide
to adjust the proportions of sub-classes
held to increase a portfolio’s potential for
growth (while tolerating an extra degree
of risk).
In most cases, a portfolio’s sub-asset
class allocation should be diversified and
proportional to the market-cap weightings
of the broad market, unless you are
overweighting a market segment or sector
as part of a conscious strategy

All-index portfolio
For those who want:
„.Minimal return variability
relative to market or
„. Lowest expenses
„. Lowest manager risk
„.History of long-term
Outperformance mix
Active/passive mix
For those who want:
„.Returns between an all-index
and all-active
„.Moderate variability to
„.Moderate potential for Alpha
All-active portfolio
For those who want:
„.Opportunity for alpha
„.Opportunity for style
„.But willing to accept:
–– Higher costs
–– Higher manager risk
–– Higher variability relative
to market
Combining the two very different approaches to portfolio construction can add real value.
Broad-market index funds combine diversification with low costs, a strategy that has
historically and on average outperformed most actively managed funds. On the other
hand, because active managers veer from the market-cap weightings typical of most
indexes, they provide the opportunity of outperforming their benchmarks, as well as the
risk of lagging them.
Under the right circumstances, active and passive components can complement each
other by moderating the swings between the extremes of relative performance. Such a
combined strategy can help avoid the pangs of regret that your clients might otherwise
experience when one approach trumps the other.
The core-satellite model
In the core-satellite approach to portfolio
construction, a large part of the portfolio
(the core) is invested in index funds to
capture the market return. Then, carefully
selected active or specialist index
investments (the satellites) are added to
provide the potential for extra returns and
The chart shows how a portfolio could be
constructed combining the advantages of
both passive and actively managed funds.
Please note that the asset allocation
shown is for illustrative purposes only and
is not a recommendation. Asset allocation
should always be designed individually,
to suit each client’s individual situation,
needs and aims.
Focus on tax
Investors, the media and advertising
typically focus on a fund’s pre-tax total
returns, overlooking the fact that this is
not what investors get after taxes. Others
might go to the other extreme and focus
solely on tax-efficiency, ignoring the
simple arithmetic that low taxes on a low
return may still produce a low return.
Asset location tackles the issue of
allocating assets among taxed and taxefficient
accounts (such as tax-efficient
pensions or ISAs) to maximise after-tax
returns. In any given year the extra return
one gets after taking taxes into account
might be small, but can make a dramatic
difference when compounded over time.
Manager selection – focus
on costs
Whether you choose index or active
managers you increase your chance of
outperformance by focusing on those with
lower fund costs, because you get to keep
more of any return the funds achieve.
Costs, like interest, also have a
compounding effect over time. They can
have a dramatic impact on investment
returns, one that’s not always obvious
or transparent. The chart reveals the
true importance of costs by showing the
impact of Annual Management Charges
(AMC) over time.
We’ve assumed neutral growth so that
the compounding effect of costs is readily
apparent and not obscured by investment
returns (either positive or negative). Note
how a low-cost portfolio, such as 0.2%,
retains over 95% of the capital after 25
years, while a high-cost portfolio, say 2%,
has eroded by almost 40%.
4. Implement the plan
With a clearly articulated plan in place and a portfolio constructed,
the theory ends and the practice begins – it’s time to start investing.
Successful practices strive for consistency of client outcome driven by
their Statement of Investment Principles.
The implementation balancing
Successful practices understand that all
implementation decisions must achieve an
optimum balance between cost efficiency
and ensuring the best possible client
outcome. Cheapest isn’t always best and
both your business interests (profitability,
risk management etc.) and client outcome
(best execution, selection etc.) have to be
achieved for an implementation process to
remain sustainable. Achieving this balance
entails consideration of three key topics:
„„Whether to outsource or DIY.
„„Managing risk, both for the client and
the business.
„„Systemising portfolio management
based on your Statement of Investment
Outsource or DIY?
First you need to decide whether
outsourcing or DIY is best for you and
your business. Remember, even when
you outsource, you’re still responsible for
everything that the outsource provider
does. Your provider becomes part of your
service offering and your clients will hold
you responsible for the outcomes. The
question of whether or not to outsource
rests squarely on whether or not your
outsource partners can deliver on your
service promise to your clients at an
advantageous cost, to the level of quality
your clients will expect.
Successful practices do tend to outsource
anything that is not part of their core
competence, such as specialist legal
advice for example. But if outsourcing is
not any better than you at something, why
do it?
Managing risk
Managing risk boils down to having a
consistent client outcome, no matter
who the individual adviser is, rather than
relying solely on adviser flair, which can
lead to embedded risk.
Compliance and risk management – along
with implementing systems and controls
as part of your FSA responsibilities as a
controlled function – can seem difficult
and overwhelming, but it’s central to
remaining compliant and building trust
and ensuring the sustainability of your
business. Also, having a robust risk
management system in place can be a
powerful selling point for your clients.
They like knowing that their adviser is
working hard to protect them.
The first step is to identify each risk
point, both financial and reputational, and
put in place provable, demonstrable risk
mitigation steps. For example, dual sign
off of any asset purchases to make sure
they align with the client IPS. A related
activity is systemising the non-negotiable
items, e.g. test performance against the
risk parameters as laid out in the client
IPS. This isn’t negotiable and should be
Ensure that you’re not permanently
embedding a problem however. For
example, make sure you understand how
an asset allocation tool works and why it
generates a given outcome to ensure that
it’s not a flawed outcome.
Systematic portfolio
Questions concerning implementation
ultimately come down to decisions about
in-house IT systems and third-party
services, such as platforms. The first
thing to come to terms with is there’s no
holy grail – it all comes down to achieving
an appropriate balance between client
outcomes and costs.
Now that you have a plan that your
client agrees with, it’s time to consider
which systems or platforms you need
to implement it. Your client proposition
should drive your system/platform/wrap
decisions, not the other way around.
System/platform choice
Deciding on systems and choosing platforms leads to a variety of questions you need
to answer. These questions all centre on ensuring that you only make promises you
can keep and that your systems will help you keep those promises. Any decisions must
include both client and business benefits to be sustainable.
System or systems First decide how many systems or platforms you need to implement
your client promise. Find the best mix that favours both your client and
your business. Remember that multiple platforms also equal multiple
costs. Each platform or system entails training and implementation costs
regardless of how much or little you use it and those costs are fixed.
Coverage To implement fully, you may need to have access to all the relevant funds
and wrappers. In a post-RDR world you may also need to demonstrate a
‘whole of market’ examination; can your mix of systems ensure that?
Costs Cutting system costs only in the interest of margins probably isn’t
sustainable. Costs have to be balanced against the relevant client
outcome. Remember, cheapest isn’t always best.
Risk controls / MI Does your system provide the relevant risk controls and management
information you need?
Client access Have you promised your client direct access to monitoring their
investments? If so, does your system(s) support that promise?
Servicing vs. sales Does the system balance the needs of servicing and sales? Making
the ‘sale’ is important, but keeping your client promise through robust
servicing ensures clients are willing to pay your fees for your service for
the long term.
5. Monitor progress
To ensure the plan stays on track it needs to be monitored and
regularly assessed. This includes periodic assessments at set intervals
according to a predefined set of criteria. Regular reviews consider
the progress against the clients’ goals and required rate of return and
adjust if necessary.
Monitoring and review also help to solidify the client-adviser
relationship by continually adding demonstrable ongoing value and
expertise for the client.
The importance of review
It’s no accident that successful advisery
practices place a significant emphasis
on the review process. In the past, initial
client engagement was perhaps the most
significant event, as this established the
relationship and where commission was
Thereafter, ‘review’ meant a cursory
check on client holdings and a chance
to uncover further sales opportunities.
As the fee-for-service model has grown,
best-practice advisers have come to
understand that the client will only pay an
ongoing fee for a valuable service. Only
if clients feel they are making progress
towards their goals will they keep paying
their adviser. Indeed, demonstrating your
ongoing service for the fee you charge is
now a regulatory requirement.
The most successful advice practices
don’t just offer a portfolio review service,
they offer a ‘goal attainment’ service. As
a result, the ‘review’ has become more
than just a review of the investment
portfolio. It involves a fundamental
reappraisal of client goals and aspirations,
with adjustments to the financial plan if
necessary. Advisers can use the review
process to reassure clients that they
remain on track to meet their goals.
What to review and how
You’re seeking to demonstrate to the client that your plan is getting them to where they
want to be emotionally. So this is where you check in with your clients to reaffirm their
portfolio objectives, situation and stated goals.
Significant life events If the client experienced a major life-changing event, such as a
divorce, death in the family, marriage or an addition to the family,
you might need to revisit the plan from step one. This presents a
fantastic opportunity to demonstrate your value to the client by
showing your flexibility and expertise at dealing with changing
circumstances and adjust their plan accordingly.
Asset allocation strategy If nothing has changed which would require an adjustment of the
plan, you review the asset allocation for portfolio ‘drift’, comparing
results to the objectives and assessing the likelihood of achieving
them. All tolerances for asset allocation and the resulting actions
should be set out in the IPS so that you know what to do to address
any gaps or imbalances. As part of this process, review each of the
major asset classes and their performance. Consider whether other
asset class or sub-asset classes merit consideration, within the
parameters of the IPS, which could better help the client meet their
long-term objectives.
Real vs. actual risk You will also need to assess the risk that the portfolio actually
produced, in terms of volatility or other risk metrics, and determine
if the actual risk matched the predicted risk and if the actual risk
was consistent with the client’s risk tolerance.
Costs Review the costs of the portfolio and ensure they stay within the
parameters agreed in the IPS. Again, this is another way to overtly
demonstrate your value to the client by demonstrably working
on their behalf to ensure the most efficient investment portfolio
Fund manager At the fund manager level, evaluate each individual fund manager
against the criteria set out in the IPS for the goal of each fund. Does
the fund fulfil the advertised risk and diversification function you’ve
assigned to it? Has the fund manager changed? Have charges
This simplified IPS is for illustrative
purposes only.

Client / circumstances
Mr. Joe and Mrs. Jane Blogs (Married)
DOB: Joe: 1973, Jane 1972.
Children: 2, both at university

Service relationship
Wealth Management: Gold (see separate
documentation defining level of service)

Financial Goal(s)
„„Financial independence and retirement
at age 66.
„„Legacy: Leave debt-free properties to
each of their two children.
„„At retirement: 12-month global tour
(Europe, Asia, Africa).
Probability of success: 96%, based on
their regular savings and modest lifestyle.

Purpose of Portfolio
„„Provide steady growth of capital until
„„An inflation-adjusted, after-tax income
of £XXX every year in retirement.
„„A lump sum of £ XXX upon retirement
Risk and Return Expectations
Based on the fact find, we agree that
the clients’ acceptable risk rating is 5
on a scale of 7 (the clients would be
uncomfortable with a 20% drop in portfolio
value). We expect pre-tax, inflationadjusted
returns of X% from cash, X% from
bonds and X% from stocks. We expect a
dividend yield of X% from stocks that will
at least keep up with inflation.

Time Horizon
Target retirement date is XX/20XX.

Target Asset Allocation
„„Cash X%
„„Bonds X% (break down by sub-asset
class, such as: Corporate, government,
inflation linked)
„„Property/REITs X%
„„Equities X% (Break down by subasset
class, by geography and market

Diversification policy
No one fund or account should comprise
more than X% of a given asset class,
except cash, with X% threshold for

Rebalancing and review
„„We will provide a detailed annual report
for the client review.
„„The portfolio will be reviewed annually
on 1 August and rebalanced accordingly,
selling what has gone up and buying
what has gone down if necessary
„„New money will be used ongoing to
help maintain target asset allocation to
help avoid rebalancing transaction costs
„„A review of progress and client
circumstances will be undertaken at
our offices on the third Monday in July
annually. Any changes made to the plan
will then be subsequently reflected in
the rebalancing on 1 August.

Investment philosophy
(Your statement of investment principles)

Investment Universe
„„The portfolio will be based on a coresatellite
model, with the majority in lowcost
index tracking funds and/or ETFs.
„„Satellite funds will be geographic or
sub-asset class specific index funds,
or carefully selected active funds for
purposes of diversification and risk
management (refer to investment
philosophy for selection criteria).
„„No individual stock or derivative
positions will be allowed.

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Leo Lingham


In Managing a business, I can cover all aspects of running a business--business planning, business development, business auditing, business communication, operation management, human resources management , training, etc.


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