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Investing your money

Our Investment Process describes our approach to the provision of investment advice.  It outlines how we build the investment portfolios for each of our clients.  It is based on our investment beliefs. 

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If you don’t understand anything here please ask us, there is no such thing as a dumb question when it comes to looking after your money!

Click on the links below to find out more about we will invest your money

  1. Our core principles
  2. Our advisory approach
  3. The advice process & managing portfolios
  4. Attitude to risk and investment strategy
  5. Clever Adviser Bespoke Services
  6. Wrap platforms & fund supermarkets
  7. Further pointers: portfolio turnover rate, diversification, tax & past performance

Our Core Principles

We use our Investment Philosophy to help us determine the most suitable portfolio for each customer:

  • Understanding risk is important
  • Matching your portfolio to your risk profile is essential
  • Asset allocation is the key to success
  • Diversification (not putting all your eggs in one basket) is a sound principle (see appendix 2)
  • Funds are a cost effective way to access investments for many customers, though specialist managers may be appropriate for part of larger portfolios (typically over £500k).

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Our approach

Customer

Risk profiling and individual customer needs’ assessment are the key inputs – so we will spend time with you to discuss and understand this. We also need to understand your need for income and capital growth and any special requirements (such as trust funds).

The portfolio

We know which asset class we want to use.  We also know those we wish to exclude such as hedge funds, pure commodities and unregulated investments due to liquidity concerns, less rigorous regulatory oversight and their opaqueness.

We have a process for building client portfolios – driven predominately by asset allocation as this is the biggest driver of return and risk. We can map our portfolios to the different customer risk profiles (including attitude to risk, risk tolerance, time horizon).  This is the key to making sure that they are suitable to you.

Our client portfolios are selected to meet client needs and not the other way round – we are outcome driven, not product driven. You should be aware that although we know how the portfolios have performed historically, the future will be different, so we need to regularly review them.

Our process is designed to give a good outcome for each and every client commensurate with their risk need – the process is bespoke to each client.

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The Advisory ProcessGrowth support

We use expert external and internal resources to monitor and select expert fund managers.  These in turn research and select the optimum investment funds/stocks for the portfolios from the wide range that is available in the market.

Our investment process is designed to avoid poor investment funds – as asset allocation and costs are the best predictors of future returns this is where we focus our efforts.

We will consider, where appropriate, the use of expert discretionary managers to construct portfolios where we believe this adds value or construct and manage portfolios from select funds ourselves.  This will generally only be for clients with in excess of £500,000 as the extra costs make it inefficient at small portfolio sizes.

Independent expertise is used to enhance our offering (Skandia’s Online Risk Profiling Tool).

The portfolios we select are matched to the risk profile that is appropriate for each client – they are reviewed in line with the agreed level of service. 

We use a specialist risk profiling tool provided by Skandia’s Risk Profiling Tool which has a good range of questions to measure appetite for risk and capacity for loss and publishes regular asset allocation data.

This creates a number of risk profiles between 1 and 10. Clients with risk profiles of 8, 9 and 10 need a bespoke conversation as this is a very high-risk level.

Funds are then selected after thorough research and due diligence.

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The portfolios

Portfolios need to be reviewed regularly, at least annually is our benchmark, so long as this is in line with the client’s risk profile.

The most effective tax wrapper for the client’s tax position may impact the selection of the method of investment.

Clever Adviser can be offered to clients with investments of more than £100,000.

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Attitude to Risk and Investment StrategyRisk

When making financial provision to fulfil clients’ objectives, the degree of risk they are prepared to accept is a major factor in considering the most appropriate choice of products and funds.

There are three types of risk of which clients must be aware and understand before proceeding:

  1. Capital risk – the risk that you will get back less than you have invested, or that you will lose any previously won gains.
  2. Income risk – the risk that where you have elected to take an income from your investments that the income is less than you expected and indeed need.
  3. Liquidity risk – the risk that you will be unable to get your money back at the time that you need or want it.

Clients should also consider the fact that investments may not keep pace with inflation and therefore lose value in real terms.  In other words, the purchasing power of money will reduce over time.

In order to help us to match our recommendations to clients’ attitude to risk, we complete a risk profiler.  In addition, we advise that attitude to risk should be revisited on an annual basis to ensure that financial planning strategies continue to remain in line with risk appetite.

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Clever Adviser Bespoke Servicescleveradviser logo

For clients with over £100,000 to invest we have a number of solutions:

  1. We may construct a portfolio from our own research.
  2. We recommend Clever Adviser Bespoke Services.

Past events have seen some of the most turbulent investment market conditions for decades and the future is going to bring both challenges and opportunities for investors.  Whichever the outcome you experience could depend upon the action you take right now. 

Martin Aitken Financial Services Limited has worked closely with a specialist Technology and Research Company called “Clever Adviser Technology” on an exciting new investment proposition, resulting in the launch of a new Bespoke Service especially designed for our clients.

This service has been developed with the aim of helping to maximise returns and minimise losses and thereby potentially increase your future financial security. Find out more about Clever Adviser Technology >more

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Wrap platforms & fund supermarketsChoice 2

Wrap platforms or fund supermarkets (e.g. FundsNetwork) offer a cost effective way for you to access tax wrappers (e.g. pension and ISAs).  It also reduces your paperwork.

They also allow you to hold investments from more than one fund manager.  Any switches that are made may be faster using platforms.

You can also see the value of your investments online – some with analysis to see how your investments have performed.

Platforms also allow us to manage your investment tax effectively – “Bed and ISA” for example.

Your investments are held by an independent custodian, potentially offering an additional layer of security.

We select the best platform based on your needs from a short list of those in the whole market. Our selection of platform will be partly driven by the costs of trading and availability of our preferred investment solutions.

If we use a discretionary manager they are likely to use their own investment platform to manage your portfolio – the reports and valuations for this are likely to be quarterly.

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Further pointers: portfolio turnover rate, diversification, tax & past performance

There are a number of key stages we have used when screening funds/managers and other investments.

Portfolio turnover rate

A fund’s portfolio turnover rate measures how often a manager buys and sells securities. A high turnover rate indicates that the manager does not hold on to stocks for very long.

This may indicate active management but on the flip-side, it can lead to higher costs and indicate a short term investment approach. 

These costs are not always as easy to discover as you might like! By contrast, a low turnover rate would indicate a manager with a long term buy and hold view to investment.

DiversificationDiversification

Making sure you have a good mix of funds, either directly via a model or through a fund-of-funds, that meet your long term needs is a key to long term success.  You also need to make sure that the funds you own have a good spread of holdings. 

A small number of holdings may be indicative of a manager who backs his convictions while a large number may suggest the manager is going to try and match the index.  

Both have their place, with the former being riskier yet more likely to give you outperformance/underperformance while the latter may have a lower investment risk but not outperform the market, in which case you might think about investing passively instead.

Does it do what it says on the tin?

It’s important that you know what a fund can and does invest in.  If you want exposure to Far Eastern equities then there is little point picking a UK corporate bond fund. 

But perhaps more importantly: don’t judge a book by its cover.  The exact index that a passive fund tracks is key.  And for active funds making sure you understand the exact mandate the manager has is crucial.  It wasn’t long ago when the cautious funds could hold up to 60% in equities – and a number of investors may not think that sounds very cautious!

Also, consider what impact the fund will have on your overall portfolio’s asset allocation and risk.  If you are picking a fund to compliment others within your portfolio from the same sector, e.g. UK equities, is the new fund sufficiently different to your existing ones to offer some form of diversification? Diversification reduces a portfolio’s risk – duplication does not!

Past performance is not a guide!

The standard risk warning that you will see on all financial literature is that “past performance is not indicative of future returns”, or a variation thereof. 

Now, this is true for a number of reasons. Research that the Financial Services Authority conducted when it introduced the warning showed that there was, in fact, a link between past performance and the future – but only unfortunately that poor performing funds tended to be poor in future.

Tax – Income or GrowthMaco Tax Planning Icon Strip

Check whether the fund is focused on providing income, capital growth or a mixture of the two.  This information can be found on the funds’ factsheet.  It is important that this matches your requirements. 

For example, a young high rate income taxpayer may be more inclined for capital growth as they do not need access to their funds in the short term.  But obviously income from investments funds can be reinvested but you will still be taxed on it. 

So a high rate income taxpayer probably won’t want to generate any unneeded income. Capital Gains, on the other hand, are only taxed once you sell the investment. 

Make sure you also know the tax implications of your chosen fund as you may want to invest in it via a wrapper such as a Stocks & Shares ISA to avoid tax altogether.

There's more tax planning ideas in our Tax Planning for Life 2017-18 guide >more

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