Stage 1 – Attitude to Investment Risk
Our investment process is based on the proven system called ‘Asset Allocation’ or ‘Modern Portfolio Theory’ and begins with an assessment and discussion of a clients risk level.
To establish your attitude to investment risk, we ask you to complete a risk profile questionnaire and each answer produces a score. These scores are then aggregated to calculate your specific level of tolerance for risk, from 1 (low) to 10 (high). We call this your risk profile score. We then discuss the results and your ‘capacity for loss’.
The risk-profiling questionnaire we use is developed by Skandia in association with the leading actuarial consultancy Towers Watson, in line with the best industry practice and the guidelines laid down by our regulatory body, the Financial Services Authority.
Many of the terms commonly used to describe attitudes to investment, such as ‘cautious’, ‘balanced’ or ‘aggressive’ can mean different things to different people. That’s why we aim to make our assessment of your attitude to risk as objective as possible. It is also important for you to understand exactly what your risk profile score means and that’s why we will also have a discussion about what your risk profile score means i.e. Volatility, potential downside risk etc…
Stage 2 – Creating an ‘asset allocation’ in line with your risk level
Asset allocation’ involves getting the balance of assets in your portfolio right. The funds available for you to invest in are categorised under different asset classes depending on their particular focus. These asset classes include cash or money market investments, UK fixed interest, international fixed interest, property, UK equity and international equity.
Different types of assets have different performance characteristics, so our aim is to allocate the right mixture of funds to your portfolio so that, over time, the peaks and troughs of their performance balance each other out in a way that is optimised for your particular risk profile and your expectations for growth.
Asset allocation is based on long-established and well-proven mathematical principles. We rely for this part of the investment process on Towers Watson, the leading firm of Actuarial Consultants. With 40% of FTSE 100 companies’ pension schemes as their clients, Towers Watson has significant experience in providing such information.
Stage 3 – Selecting the funds to match your ‘asset allocation’
Once the asset allocation stage is completed, we need to choose appropriate funds to reflect the various asset classes in the right proportions. With thousands of funds to choose from making the right decision is extremely difficult. At Get Financial Advice we always select funds that have a proven track record. The first part of our selection process is to narrow the fund universe down to a select few. We do this by identifying funds and fund managers that have been rated highly by independent ratings agencies, Morningstar and Old Broad Street Research (OBSR). These ratings not only take into account a funds past performance but also look at a fund and fund groups people, process, parent company and price i.e. charges.
Once we have done this we will then look at a funds key ratios and investment style to determine the funds we recommend to our clients. Given the volatility around stock market investments, we believe that carefully selected active fund managers will typically be able to identify opportunities for ‘out performance’ – doing better than average.
Stage 4 – Monitoring and Reporting
At 3 month intervals, our investment committee meets to assess the performance of our portfolios and their component funds. The Investment Committee looks for any out performance – or underperformance – that might need further investigation. Funds are assessed using the same criteria as in the fund selection process. If the committee feels it necessary to change a fund within your portfolio to rebalance, we will contact you and ask you to authorise the switch.
Portfolio valuations will be provided to you every 3 months so that you can keep check on how your investments are performing. It is at this stage that we will inform you of any fund changes required if necessary and ask you to confirm that you are happy with the recommendations and also if your attitude to risk remains the same.