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Editor’s note: Getting a grip on investment processes

How do you decide what investments are right for your client? In our cover story this week, we look at how advisers big and small have set up investment committees or otherwise sought the help needed to answer exactly that question.

Frankly, the range of investment options available to advisers as we enter 2018 is bewildering, and it is no surprise that there has been a slight trend towards outsourcing investment management decisions over the last few years.

It is hard to downplay how integral portfolio construction still is to the planning process, even after the RDR divorced the fund managers themselves from advisers. If you really don’t care about picking your clients’ investments yourself, that’s absolutely fine, but advisers are still, and rightly so, sitting down and putting some serious effort into working out what they value in the people that do. Maybe your client is sincere in their opinion that they are really not fussed about exactly what is in their portfolio, but they will be the second they become dissatisfied with returns or run out of money.

And while one-man-band advisers continue to astound onlookers with a seemingly infinite ability to juggle client demands, no person is an island when it comes to the arduous task of wading through reams of murky data on funds or discretionary fund managers.

Our cover story on how advisers are making sure they pick the right investments

Deciding on a risk profile – something historically seen as a strength of  advisers – and deciding on an investment portfolio are two fundamentally different things. One cannot just be shoehorned into the other; evidence has to be provided that they fit hand in glove and advisers have been called up on this in recent FCA work on suitability.

There appear to be a number of key features of those firms that have good investment decision making processes in place. Is it repeatable? Is it reviewed regularly? Is it dominated by one individual, or by one school of thought? Is challenge accepted, and are there enough voices to effectively challenge? Are there too many voices to get any kind of clarity?

Is there sufficient external expertise involved? Is that expertise conflicted, or do your in-house decision makers have conflicts? Notice that none of this, yet, includes a discussion of costs, though this surely must enter the equation at some stage, if for no other reason than the FCA’s discussion of the relative underperformance of many active investments.

None of this needs to be any more complicated than it has to be. I know many advisers that live by the adage that if they don’t understand the product, they can’t recommend it. This is unlikely to steer them wrong when avoiding the next Keydata, Connaught or Arch Cru.


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