Jagdeep Singh and I had a hugely rewarding chat about their service offering, comprises matching clients with appropriate investment portfolios based on their investment objectives and risk tolerance.
The first stage of the process is an internally generated questionnaire, assessing how clients feel about risk and looking at their expectations and cash-flow requirements. Are they looking for income, in which case they are chasing dividend yields, or are they seeking value-add to trading stocks commensurate with their long-term growth expectations?
Establishing the risk-reward ratio
When assigning clients baskets of investments, the financial planner has to interrogate the overhead of an actively managed fund – transaction fees and management costs, for example. Potential investors have to ask themselves, “What’s the potential growth of that fund, and will be be appropriate for me?”
Singh stresses that swaps and futures, and other instruments used to hedge against the risk of certain bank holdings on their balance-sheet, are “not financial instruments recommended to retail investors,” that are largely deployed to lock in a more favourable borrowing rate on credit products with counterparties (interest rate swaps or IRS); or trade on growth expectations for commodities and foreign exchange (forex).
In the context of portfolio allocation, “crudely, up to 60% of the invested sum is in equities, and 40% in bonds. It depends if there’s lifestyling applied – the fund, which reduces the exposure of the portfolio in the 10-15 years pre-retirement, will invert the ratio meaning 40% is applied to equities and 60% to bonds.
The trade-off is that bonds demonstrate less volatility, but also less growth in their tradable value.”
This re-allocation of portfolio apportionment is termed the ‘Glidepath to Retirement’.
Duration of Capital Investment
When questioned about lock-in clauses, Singh says that a minimum investment period of 5 years should be treated as standard, that clients should not expect to withdraw their capital before the end of that period and that they should not invest more of their income than they can afford, which is why in advance they establish overhead cost of living and allocate a capital buffer to forestall emergency costs and/or financial hardship situations.
Of course, the option still exists of taking your pension fund as one lump sum. Apparently pre-Budget when the Labour Party came in, a lot of people applied to take the cash for fear the Labour Party would revoke the tax-free cash option – which it did not do. But Singh points out that a bank savings account deposit can still be liable for income tax – “Better to stay invested so you can capitalise on growth, where there’s no need to take the money.”
Different Buckets
In terms of the service offering, the ‘Model’ portfolio is analysed on a quarterly basis, whereas those with tailored portfolios will predicate return on historic performance of funds contained within it and these are analysed at the year end. You can tender individually to buy into specific funds, and both options have an opt-in for ESG ratings to be incorporated – “We do both scenarios in ESG.”
When considering apportionment to actively managed funds, obviously they consider the price to equity (P:E) ratio, past performance and management fees. Also factor in the F:E ratio, representing the quality of that fund compared to its peers – what growth level it returns vs the benchmark.
Core factors determining apportionment are a consistent track record and a favourable comparison with historic volatility – what is the correlation with overall market volatility and does the manager generate a positive gain through trading volatility? How are its holdings marked to market? These so-called beta measures are applied when considering including a fund in one of the investment portfolio options.
For an initial consultation if you are considering a long-term investment as part of your plan for retirement, contact
Jagdeep.singh@quilterfa.com
07342 412630
or make application via the online portal where you can search for his individual investment advisor profile.
Brightsides.uk 
Leave a comment