This is an important document for ALL to understand.
It comprises:

  1. An overarching common approach at the macro level.
  2. A number of Internal House Rules that set the acceptable standards for the criteria that are the minimum.
  3. The list of client based criteria and data from the Fact-finding Information that are needed to inform the above area.
  4. The best funds per sector for use are analysed
  5. A regular review process for ensuring that that 2, 3 and 4 are up to date

The overarching process

This is block process that is common to ALL clients and demonstrates our commitment to a systematic and consistent treatment to all of our clients.
The fact-finding is carried out and it’s data is then applied to the companies house rules to determine the most suited way forward in respect of tax wrapper, administration wrapper, and any fund selection executed. Regular reviews to check that the positions of the client and portfolio are still in tune with each other and any necessary changes are made.
The Fact-finding is carried out with the client and verified by obtaining any necessary verification of the data provided by the client and any of his professional advisers.
That will include the agreement of the client’s tolerance to risk with respect to the matters being dealt with. A questionnaire from one of the major companies will be used to provide the initial benchmark. The definitions of that benchmark will then be discussed with the client and modified so that the client is happy and comfortable to use the resultant guidance. A 20% fall reaction will also be used to assess tolerance in an everyday setting. Does the client want a different risk profile for their separate portfolios or the same one across all of them.
The clients capacity for loss will be assessed and agreed with the client from the fact-finding data and will consider issues such as current and relevant future cash flow as well as the size of investible and emergency funds.
Pre-existing funds.
The client’s objectives, including:

  1. their attitude to ethical and
  2. their attitude to socially responsible investing,
  3. their required balance of income versus growth for the funds
  4. if the fund is going to be multi-generational
  5. the will is to be obtained and taken into account so that the overall position is appropriately balanced.

The clients views on the current and future markets and their concerns for the Black Swan unexpected huge negative event.
The level of involvement they want on a day to day basis
The amount of administration that they are capable of or want to do.
All of this information is kept under regular review to ensure that all relevant changes are captured quickly and allowances actioned.

House Rules

These are our views as to which levels of which criteria are used to assess the available vehicles and funds. These are provided to the client after first contact so that they can literally understand where we are coming from when we make a recommendation.
For the administrative vehicle the following are the key features reviewed:

  1. Tax position
  2. Costs
  3. Flexibility
  4. Fund availability
  5. Exit charges
  6. Financial Stability of provider
  7. Administrative efficiency of provider
  8. Reputational standing of the provider

For the mix of fund types ( asset allocation )

  1. Client objectives
  2. Client Attitude to risk
  3. The place of each type of asset on its investment cycle
  4. The place that we start at on the interest rate cycle
  5. The general economic outlook at the start and throughout the investment period.
  6. Recognise that the mix changes as necessary upon the reviews.

For fund selection the following are the main features considered:

  1. Sector
    1. Geographical
    2. Industrial
    3. Thematic

    As defined by the Investment Managers Association ( IMA )

  2. Size
    1. Minimum of £ 50 Million for an ongoing maturing fund so that the charges are not too high.
    2. Note for a new fund if otherwise appropriate it may be well less.
  3. Experience
    1. Minimum 5 years of this type of fund for the lead manager. Previous experience with another provider can count if they were successful with the same investment objective.
  4. Performance
    1. Top few within that sector, annualised and cumulatively over both 5 and 10 years
    2. Amongst the top Information Ratios ( outperformance of sector peers )
  5. Riskiness
    1. One of the few with the Lowest volatility within their sector over 5 and 10 years
    2. One of the best Sharpe ratios over 5 and 10 years within their sector
  6. Underlying asset mix and balance
    1. Mix of the Top 10 investments within the fund
    2. The usage of Derivatives within the fund versus actual stock
  7. Style of management of the fund
    1. Cyclical
    2. Conviction
    3. Tracking
    4. Long or Index or ETF etc