Steve Davies of Javelin Wealth Management explains the financial objectives of clients at different stages of their lives, and reveals how advisers should approach the process of reviewing investment portfolios.
Date: Feb 2010
Tags: Life stage, Portfolio review, Risk profile
Differing investment objectives
When advisers sit down with their clients to work through the planning process, there are clearly different objectives depending on where the clients are within their lives and careers.
For example, said Steve Davies in an interview, someone who is starting out on their career will have less disposable income – they will saving some money but they will also be spending a lot as they will be trying to save for a house, or to get married and have kids.
When people get older, they hopefully have the luxury of having more assets and therefore being able to determine how they want to invest that money for the longer term, for example to fund retirement or educational fees.
Most of Davies’ clients are people in their 40s and 50s, he said, who have already amassed a reasonably significant investment portfolio and who haven’t yet been through the process of determining their longer-term objectives in terms of how they retire and what is the most tax efficient strategy for them.
Critical to this process, said Davies, is for advisers to be aware of the fact that all clients are different.
Portfolio reviews
It is important for advisers to review their clients’ portfolios on a regular basis because circumstances change.
For example, said Davies, markets go up and down, and an individual’s personal financial position can fluctuate depending on things like whether they might get promoted or lose their job. There might also be various lifestyle-related events such as getting married or having kids.
All these things mean that at no stage should an investment portfolio or a financial plan remain static.
It should be reviewed at least once a year with the financial adviser, said Davies, to ensure the portfolio matches the client’s longer term objectives, and that the risk profile of the portfolio is commensurate with the client’s risk appetite at that point of time.
If that is not the case, the portfolio should be re-weighted, he advised.
There are some situations, however, where it is necessary to review a client’s portfolio more frequently than once a year, said Davies.
For example, he explained, if markets have been volatile and risen more sharply than expected, advisers should look at whether to lock in profits. On the flipside, when markets have fallen sharply, advisers need to consider whether to buy more of a certain asset and dollar-cost average, or to ride out the volatility.
According to Davies, a key time to review a portfolio is when there is change in an individual’s personal circumstances – for example, moving overseas to countries where different tax rates apply. Portfolios should be restructured at that time to maximise any benefits which will accrue as a result of the change, he suggested.
Or, for people who might have lost their job, they will need to shift the focus of their portfolio to preserving capital for the time being.
Over a period of time, if clients are working with an adviser who understands their circumstances and has set up a portfolio to achieve a specific return over a period of time, Davies said this portfolio should be reviewed regularly to consider how this is performing relative to long-term performance objectives.
A two-way process
If clients choose not to tell their adviser about other aspects of their portfolio which might have a bearing on what the adviser would otherwise recommend, then the adviser cannot be responsible for the eventual outcome if it turns out to be different for the client might have wanted.
That comes down to the strength and length of the relationship between the client and adviser, said Davies.
