what we do
We are an independent wealth consultancy that provides:
- financial planning and consulting
- continuous investment advice and portfolio management
We work for wealthy individuals, families and trustees — both directly and in partnership with their existing professional advisers and experts.
Clients use us for one-off consulting projects or retain us for continuous investment services.
We operate a professional business model: we charge fees and we always act as the client's agent. We are typically the only adviser co-ordinating all aspects of a family's finances and managing multiple relationships with service firms. When retained as investment manager we can work on an advisory or discretionary basis, depending on the type of portfolio and underlying investments.
All our services draw on our extensive investment expertise, use our own financial modelling and apply our technical knowledge of pensions, tax, trusts and insurance. Where necessary, we supplement these skills by working with third-party experts.
planning
Our planning services cover a range of activities, reflecting the needs and nature of our clients, including all of the following.
An extensive audit of all aspects of their existing arrangements, including:
- Reviewing their roster of financial services suppliers
- Clarifying the investment approaches that are being followed
- Identifying high-level asset allocation and implications
- Checking the efficiency and appropriateness of the product types used
- Checking the efficiency of the use of tax-favoured vehicles
- Checking the mandates given to investment managers
- Checking the risk-management processes at client and third-party level
- Estimating costs and appraising cost-effectiveness
- Providing clarity about insurable risks
- Identifying issues and options for action, in broad terms
A comprehensive financial plan
- The scope of an audit plus fully-developed plans for all specific objectives
- Comprehensive in scope but at two levels, by agreement:
- High-level, based on strategic exposures (such as category totals)
- Including detailed analysis of individual asset holdings
Focused financial planning
- Limited (for instance) to a pension need, such as the contribution strategy, vesting strategy, or consolidating multiple pension plans in one trust
Developing investment mandates for family trusts
- Working with trustees and solicitors to clarify objectives and identify possible conflicts between objectives
- Developing equitable, robust solutions to address conflicts
- Determining an optimal investment approach and strategic asset allocation
- Developing a framework for risk management
- Developing an explicit portfolio-manager mandate
Ad hoc consulting projects
investment
We offer two internally-managed portfolio types that allow us to customise solutions for most investment problems, at different levels of risk and with different risk preferences:
» 'defined outcome' portfolios
These are differentiated below. As important is what we leave out, and why. We reject the conventional, actively-managed approaches that account for most private financial assets, whether advised by IFAs or managed by portfolio firms. These approaches make unreasonable assumptions about skills and returns relative to total costs, are self-serving for the industry but a bad bet for the investor.
Both types of portfolios we organise are dynamically managed by us at the asset allocation level and implemented by funds, Exchange Traded Funds, limited partnerships or third-party specialist managers. We only manage portfolios of individual securities where our mandate is to replace these in a tax-optimal manner with one of the above.
We also act in an advisory or supervisory capacity on a continuous basis where clients require:
- Liquidity advice
- Strategic asset allocation for their own third-party portfolios
- Manager oversight for third-party portfolios
All of these services include advising on the optimal 'asset location' strategy:
- How to hold assets between spouses
- Which assets to assign to which goals
- Optimal use of tax-favoured accounts
- Which assets to use for rebalancing or drawdown
'defined outcome' portfolios
Our model-driven, goal-based portfolios are customised to deliver an acceptable range of possible outcomes (after inflation) at defined times.
They are most suitable where:
- outcome certainty is more important than the path of the portfolio in the intervening years
- quantification is highly-valued, both to define the goal and to define at any stage the goal-specific outcomes the portfolio will produce
- investors trust the continuation of 'mean reversion' in real equity returns, at a market level, and are satisfied harvesting systematic risk premiums at the lowest possible cost
Example: a 'drawdown plan':
- Goal: to meet all lifetime spending needs from a defined amount of resources (from income and capital, from pension or taxable capital or both)
- Defined targets: a safely-sustainable annual rate of draw in real £, including both a desired outcome and a tolerable worst-case outcome
- Defined time horizons: a schedule of dates based on age
- Defined resources: capital assigned (or required) to meet outcomes
- Defined risk tolerance: as a function of tolerable ranges of outcome, reflecting how upside potential is traded off against downside risk
Collaborative planning means the plan is defined with an internally-consistent balance between the targets, time, risk and resources
The investment portfolio is managed dynamically to ensure that, whatever happens in markets, the agreed range of outcomes can still be delivered as required, when required
- The portfolio building blocks that provide sufficient predictability are major equity markets, globally diversified; but to control the range of outcomes we need to combine these risky assets with risk free assets with near-certain real outcomes (usually index linked gilts)
- The dynamic 'asset allocation' process that controls the portfolio is based on a mathematical model
- Implementation relies on low-cost equity index-tracking funds and cash or index linked gilts
Progress of the portfolio is reported looking forward:
- The model recalculates the new probabilities of achieving the target outcomes
- Because the model assumes slow mean reversion in real equity returns the probabilities are much more stable than markets
- This ensures messages about the adequacy of resources and the sustainability of the rate of draw do not keep changing
'defined path' portfolios
Our multi-asset class portfolios are designed to deliver real growth in long-term purchasing power with low downside risk 'along the way'.
They are most suitable where:
- what happens to the path of the portfolio in money terms is more important than certainty about long-term outcomes in real terms
- investors' trust in the broadest possible diversification as the best means of managing both path and outcome risk
- investors want more than just harvesting market risk premiums and believe there are elites who can create additional value
The target return is 3.5% pa above inflation (over a full market cycle), which is equivalent to a Defined Outcome portfolio with a long plan life and low risk tolerance.
The target volatility over all short periods is about half the volatility of a diversified equity portfolio. This still leaves a risk of 'paper losses', making this is a hybrid of so-called 'absolute-' and 'relative-return' portfolios.
Defined Path portfolios share much in common with absolute-return portfolios, a popular concept with 'alpha hunters', and Defined Outcome portfolios share much with relative-return approaches, popular with 'beta gatherers'. We explored these distinctions in a recent position paper on the blog. Preferences for one or other approach tend to relate either to personal beliefs about how wealth can best be created or to the purpose assigned to money. The latter obviously applies more readily in a planning framework in which capital is segmented and given specific jobs to perform.
The performance feature we cannot replicate with conventional asset allocation is 'asymmetry': exposure to more upside risk than downside risk.
- Asymmetrical volatility requires sophisticated management techniques, such as option strategies, and very active management of risk exposures by competent and confident professionals
- It is a highly desirable feature but is not dependable and assumes a belief in elites within the markets
- To capture the option of asymmetrical returns we delegate much of the portfolio exposure to a skilled, specialist 'alternatives' manager.
Further customisation of the portfolio risk or return is possible:
- we can take into account existing holdings the client wishes to retain
- we can adjust the risk and return up (by gearing) or down (by holding more cash)
Progress of the portfolio is necessarily backward-facing:
- we have no modelled basis for quantifying return estimates consistent with the current level of the portfolio
- we can only use judgement to assess continuing consistency with the long-term real-return target and the short-term volatility target.
