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I Advise Therefore I Am

What is your investment philosophy....?

“One person with a belief is equal to 99 who have only interests”.  John Stewart Mill

When it comes to investments, what do you believe in? It is an interesting question to ask of yourself and of your team if you have a multi RI practice. After all, if you are going to advise clients about where they should be investing their money it is probably a good idea to know what you fundamentally believe in as an adviser. As John Stewart Mill’s quote above suggests, believing in something and being a passionate advocate of it can lead to great things – this passion is noticed by clients and can become a key reason why they feel connected to, engaged by and ultimately trust in an adviser.

“It's the repetition of affirmations that leads to belief. And once that belief becomes a deep conviction, things begin to happen.”  Mohammed Ali

However, perhaps even more interesting is to ask yourself why you believe those things? For example, I’ve encountered many advisers who are devout believers in active fund management having seen trusted managers deliver string returns for clients over the years. They tend not to be as strident and zealous in their belief as those who believe in passive fund management, often citing statistics about efficient markets, costs and the importance of asset allocation over stock selection. However, when you scratch beneath the surface it is interesting to find out why advisers believe in either active or passive. Can they articulate what it is that has led them to believe that one option is superior to another? More importantly, can they explain what it is they believe in, why they believe it and explain this to clients in layman’s terms?

“The word 'belief' is a difficult thing for me. I don't believe. I must have a reason for a certain hypothesis. Either I know a thing, and then I know it - I don't need to believe it.”  Carl Jung 

So what does ‘good’ look like when it comes to designing an investment philosophy for an advisory business? Well, the first thing to acknowledge is that there is no right or wrong answer when it comes to investment selection. There are many different options when it comes to populating and investment portfolio for a client – be it risk managed fund of funds, model portfolios (either those of a third party or those picked by advisers for clients) or discretionary fund management. What is right or wrong is that the investment selection needs to match the client’s attitude to risk at the point of advice and into the future. Therefore, you would think that an approach to assessing and monitoring the suitability of investments with regard to a client’s attitude towards investment risk should be at the heart of any approach to investments.

With a robust, repeatable and independent approach to risk as the founding principle of an investment philosophy, what else might advisers want to be able to tell clients they believe in? Well, do you believe in diversification?  If so, can you explain to clients why it is that you believe in diversification? Aside from the intuitive sense we have not to put all our eggs in one basket, can you explain to clients why this holds true for investments?

So, if you don’t currently have a documented investment philosophy that you can share with your clients, staff and the regulator, which is supported by research and stands up to scrutiny, it might be time to start giving it some thought.

Dan Russell, Sales & Marketing Director, Verbatim Asset Management

 

[Sponsored article by SimplyBiz] 

 

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Author: IFA Life Sponsored Post
Posted: Friday, February 28, 2014 | 12:55:45 PM


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