This month Gary Jefferies an adviser at Park Row Associates explains to Chris Salih why he believes a diversified portfolio should be the primary goal for any investor
GARY JEFFERIES SAYS his strategy is not to over-invest in any one area as the risks can far outweigh the returns.
He favours exposure to many sectors rather than following market themes.
This bore fruit during the technology collapse - his clients avoided heavy losses due to the diversification of their portfolios.
Jefferies is also a fan of multi-manager, particularly for clients targeting growth in equities.
However, he believes that the extra costs involved have prevented multi-manager fully taking off in the UK.
Jefferies explains his approach to managing client portfolios and how he believes the industry is changing.
HOW DO YOU DETERMINE YOUR CLIENTS' RISK PROFILE? I start with a lengthy, one-on-one detailed conversation with the client.
I look at their views on both risk and reward as well as where their existing assets are held and the asset mix.
I discuss various options such as pension positions, possible inheritance and debt payments.
My first port of call is to establish the client's risk profile.
From my own prospective I do not encourage clients with large mortgages or other big debts to invest further because an investment will just stretch their financial commitments.
TO WHAT EXTENT DO YOU ADJUST INVESTMENT RECOMMENDATIONS FOR EACH CLIENT? One of the most important aspects is a client's level of guaranteed income.
If a client's income level is strong, a higher portion of their investments can go into equities, if this matches their risk profile.
However if the clients' income level is not sufficient, their proposed investment usually needs to offer steady income from fixed interest products and/or funds.
Age is also an important factor to consider as lots of people are retiring slightly earlier, between the ages of 58 to 63.
Clients in general are living longer too.
Some older clients are also holding second properties abroad, which some use on a buy-to-let basis; clients tend to use this to generate rental income to supplement their existing income levels.
By investing directly in property, as opposed to a property fund, the clients are diversifying their assets away from stocks and shares.
Some younger people are also buying property and will keep it when they move on, often finding themselves landlords by default.
HOW DO YOU DECIDE WHICH INVESTMENTS ARE SUITABLE FOR EACH TYPE OF CLIENT? I usually look at a client's risk profile, their level of income and also their ethical stance, something that is becoming more popular.
If a client is looking for steady income, I would look at their attitude to risk and asset allocation.
By contrast, if clients were targeting growth, I would tend to recommend equity on a worldwide basis and try to find opportunities in those markets.
A huge proportion of clients are often unsure of which investment direction to take.
Personally, I am keen that clients have a well-diversified portfolio that matches their attitude to risk, so as to keep as many market options open as possible.
HOW DO YOU DECIDE ON ASSET ALLOCATION? Where a client already has a portfolio of assets I will always review their existing assets to ensure that they are still appropriate for the client based on their current attitude to risk.
I will also take into account the make-up of the clients existing investments, in other words, whether they are totally invested in equities, what sectors the client is investing in and what fund mix they currently have.
I would point younger people towards growth through equities, whereas those on the cusp of retirement would probably be better suited to a (maximum) 50-50 split of equities and fixed interest.
Those who need a steady income from their investment will have a portfolio that is comprised largely of fixed interest.
I would always ensure that the clients maintain sufficient emergency funds in an instant access savings account.
DO YOU USE MULTI-MANAGER? IF SO, WHICH TYPE OF CLIENT DO YOU USE IT FOR? AND HOW DO YOU SELECT EACH MULTI-MANAGER? I tend to use multi-manager for a core holding.
It is a useful addition to the business as it assists me with the compliance and research aspects of my work.
Researching the marketplace is becoming an almost impossible task for an independent adviser, especially now with new managers and new companies constantly appearing in the market.
If one holding changes within a clients' portfolio it involves a considerable amount of administration and that takes time.
Multi-manager is much better at dealing with research issues and I believe that 60%-70% of equity holdings in a client's investment portfolio should be held that way.
I would not be so keen to use multi-manager for fixed interest, because the cost could outweigh the income.
Any manager is selected on consistency and solid performance with the target being to outperform a cash deposit account as my primary target.
WHICH FUND MANAGEMENT GROUPS DO YOU FAVOUR? Generally I have a core of six to eight fund groups that I use regularly, which include Foreign & Colonial and Credit Suisse Asset Management.
HOW DO YOU DECIDE WHICH INVESTMENTS TO PUT INTO A PENSION OR A LIFE WRAPPER? DO YOU PREFER THOSE LIFE COMPANIES THAT OFFER EXTERNAL FUNDS? Again that is very dependant on each client that walks through the door.
It would involve their attitude to risk, their existing pension portfolio and the clients' objectives.
For example generally when looking at an investment of up to £150,000, I would probably recommend that this goes into an insured fund.
If the fund is larger than £150,000 other alternatives such as a Sipp (Self Invested Personal Pension) will be considered.
WHICH LIFE OFFICES DO YOU USE? WHAT DO YOU LIKE TO SEE IN A LIFE OFFICE? As an independent financial adviser I research the whole of the market for my clients.
I personally favour groups that are competitive, have a good range of funds and investments and have a reasonable charging structure.
I would apply this to any investment research for my clients.
WHICH FUND SUPERMARKETS DO YOU USE? HOW DO YOU USE THEM? I consider all fund supermarkets and recommend the one with the most suitable fund ranges covered in their offerings for the client in question.
They offer easy reporting, easy overall control of the portfolio, including moving sectors and re-balancing the portfolio at a competitive cost.
The inclusion of a riskbased profiling tool that helps me assess a client's attitude to investment is obviously a key benefit.
HAVE YOU EVER USED 'WRAP' OR WEALTH MANAGEMENT SOLUTIONS FOR ANY OF YOUR CLIENTS? DID CLIENTS READILY ACCEPT THIS METHOD? I strongly believe that the type of wrap model that has become successful in Australia has not arrived here yet.
Some of it has, but the whole facility is not available.
When the full wrap proposition has arrived, I believe many of my clients will move towards it.
This will also make the adviser's job a lot easier.
Another problem at present is that some clients are in funds that are not accessible within the wrap facility, for example, with-profits.
I believe that there will be some very positive moves in this area in the near future.
HAS THE ADOPTION OF 'MANAGED SOLUTIONS' (FUND SUPERMARKETS, MULTI-MANAGER, WRAP PLATFORMS AND STRUCTURED PRODUCTS) HELPED YOUR BUSINESS IN TERMS OF ADMINISTRATION AND REDUCED COSTS? In terms of research, multi-manager has definitely benefited me as it saves me so much time researching and ensuring that my work is compliant.
This ultimately means I am able to spend more time seeing clients, which is my priority.
HOW HAS YOUR APPROACH TO INVESTMENT CHANGED OVER THE PAST FEW YEARS? Like most advisers, I have made significant moves towards the multi-manager market.
I have also moved clients' monies away from most with-profits funds.
I have always tried to run client portfolios on a diversified basis, with no specific themes like technology.
DO YOU STILL RECOMMEND SINGLE STRATEGY FUNDS? IF SO, FOR WHICH CLIENTS? This would normally only be a small holding in a clients' total portfolio.
I would recommend this to gain exposure to a specialist market.
HOW DO YOU THINK THE INVESTMENT MARKET WILL CHANGE OVER THE NEXT FEW YEARS? Wraps will definitely develop and if multi-manager becomes more cost-effective I believe that will become more popular too.
I think we will soon see investment bonds going into wraps as well as pension simplification with more funds on a wrap type product.
I believe there is a lot of potential in pensions' investment that is yet to be exploited, especially with the approach of A Day.
I am also of the opinion that there will be fewer providers in the marketplace within the next five to 10 years.
The adviser's role will change in line with the industry and the changing needs of clients.
Park Row Associates (PRA) is the registered IFA business of the Park Row Group, which has four separate subsidiaries.
PRA operates in over 40 locations across the UK and employs over 250 advisers.
Administration and management support is provided in each branch, while technology, training and development, marketing and managed provider relationships are provided centrally.
The group uses a speciallydeveloped client management system, online client advice process, the client care desktop back office system from Quay software, plus an adviser extranet.
The group aims to grow to 375 advisers producing £22.
5m turnover by 2006.
Joined with 21 Partners
Adds £130m assets under influence
Nexus IFA among first to sign up
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