Managing Investment Portfolios for Clients

Chair: David LeeRegional Manager, Fidelity

Nigel WhittinghamDevelopment Director, Old Broad Street Research

In-depth. Informed. Independent.

PFS Conference 2008

Managing Investment Portfolios for clients

Nigel Whittingham - Development Director

Old Broad Street Research

In-depth. Informed. Independent.

We specialise in dedicated qualitative research and analysis of investment funds and products wrappers

Positioned in the market between: Fund Management Groups, Product Providers and Intermediaries

We provide services to all, but our business models are designed to ensure our independence

Ultimately all our services are aimed at Advisers and their clients

Privately owned, totally independentPrivately owned, totally independent

Old Broad Street Research

In-depth. Informed. Independent.

Managing Investment Portfolios for clients

In-depth. Informed. Independent.

Managing Investment Portfolios for Clients

The regulatory environment

………is the key driver TCF

MiFID

RDR

Put the client first Recognise your level of expertise Outsource to complement skill set Ongoing review and advice

Put the client first Recognise your level of expertise Outsource to complement skill set Ongoing review and advice

In-depth. Informed. Independent.

Adviser investment expertise

3 key segments Advisers who outsource portfolio management totally –

Financial Planners (A)

Advisers who want some involvement in portfolio management (B)

Advisers who want total control over portfolio management – Discretionary Managers (C)

Source: Research for a major investment manager and a major life and pensions provider

In-depth. Informed. Independent.

Adviser investment expertise

Adviser segments

In-depth. Informed. Independent.

Regulatory risk by segment for “investment business”

Expertise segment

Regulatory risk

A Advisers who outsource portfolio management totally

Mismatch client needs (risk profile) with selected “managed solution” (LOWER RISK)

B Advisers who want some involvement in portfolio management

• Mismatch client needs (risk profile) to solution

• Getting the asset allocation wrong• Selecting inappropriate funds(HIGHER RISK)

C Advisers who want total control over portfolio

• Mismatch client needs (risk profile) to solution

• Getting the asset allocation wrong• Selecting inappropriate funds(HIGHER RISK)

In-depth. Informed. Independent.

Outsource solutions to mitigate risk

Expertise segment

Outsource solution

A Advisers who outsource portfolio management totally

Multi-manager funds, discretionary manager

B Advisers who want some involvement in portfolio management

Asset Allocation Tool

“Guided” Range of FundsOutsource solutions may also vary with type/size of client

Complimentary outsourcing will probably reduce

Capital Adequacy and P.I.

Retail Distribution Review

Complimentary outsourcing will probably reduce

Capital Adequacy and P.I.

Retail Distribution Review

In-depth. Informed. Independent.

Managing investment portfolios for clients

Key Components

Ongoing review and advice

In-depth. Informed. Independent.

Asset allocation

In-depth. Informed. Independent.

Managing investment portfolios for clients

Client profile (investment needs) Risk based portfolio – Long term, strategic?

Or

Pure ‘performance’ based portfolio – Shorter term, tactical?

Fundamental to client expectationsFundamental to client expectations

Determines whether risk based asset allocation model is an appropriate solution

Determines whether risk based asset allocation model is an appropriate solution

In-depth. Informed. Independent.

Strategic asset allocation

Long term risk/return profile of investor

Changes if investor circumstances change

Risk

Risk Averse Investor

Risk Tolerant Investor

In-depth. Informed. Independent.

Tactical asset allocation

Shorter term gain driven decisions

Within long term strategic risk/return profile

In-depth. Informed. Independent.

Risk based asset allocation models

Some key considerations Models from different providers will give different solutions for

the same client profile

Does the model include a tactical asset allocation overlay?

Some appear more tactical than strategic and long term

Adviser must understand how the chosen model works

Chosen model must become central to adviser’s TCF regime

In-depth. Informed. Independent.

Matching funds to risk based asset allocation model

Pitfall

Asset allocation meets client requirement but wrong type of funds selected

Results

Asset allocation benefit negated

Client’s expectations not met

In-depth. Informed. Independent.

Which is the ‘Best Fund’?

UK All Companies Sector

Artemis UK Special Situations

Lazard UK Alpha

In-depth. Informed. Independent.

Which is the ‘right’ fund?

Artemis UK Special Situations (MF) Lazard UK Alpha Retail Inc (MF) FTSE All Share TR (IN:IN)Relative to

Percentage Growth Total Return, Tax UK Net, In GBP

7 Years From 28/09/2001 To 30/09/2008

Perc

en

tag

e G

row

th

-10

0

10

20

30

40

50

60

70

80

90

100

110

01/2002 07/2002 01/2003 07/2003 01/2004 07/2004 01/2005 07/2005 01/2006 07/2006 01/2007 07/2007 01/2008

75.5

1.8

User may have modif ied the original chart and axis titles provided by Lipper.

In-depth. Informed. Independent.

Selecting appropriate funds to populate the asset allocation model

Some key considerations The future is more important than the past

Understanding when a fund is likely to outperform

A full, in depth understanding of selected funds

Regular reviews with the fund manager

QUALITATIVE FUND RESEARCH

Expertise and time is KeyExpertise and time is Key

In-depth. Informed. Independent.

Fund research and selection

Outsource solutions ‘guided’ versus ‘open’ architecture from provider

Investment driven

Fund panels

Qualitative fund research specialist

In-depth. Informed. Independent.

OBSR qualitative fund research – adding value

OBSR UK All Companies Sector Average (rated) (MP)FTSE All Share TR (IN)

IMA UK All Companies (IN)LIBOR GBP 3 Months (IN)

Percentage Growth Total Return, Tax UK Net, In GBP

3653 Days From 30/09/1998 To 30/09/2008

Perc

en

tag

e G

row

th

-50

-25

0

25

50

75

100

125

150

175

200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

e96

50

43

41

User may have modif ied the original chart and axis titles provided by Lipper.

In-depth. Informed. Independent.

OBSR qualitative fund research – adding value

OBSR Europe ex UK Sector Average (rated) (MP)FTSE Europe ex UK TR GBP (IN)

IMA Europe Excluding UK (IN)LIBOR GBP 3 Months (IN)

Percentage Growth Total Return, Tax UK Net, In GBP

3653 Days From 30/09/1998 To 30/09/2008

Perc

en

tag

e G

row

th

-50

-25

0

25

50

75

100

125

150

175

200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

e131

75

70

50

User may have modif ied the original chart and axis titles provided by Lipper.

In-depth. Informed. Independent.

OBSR qualitative fund research – adding value

OBSR Global Growth Sector Average (Rated) (MP)FTSE World TR GBP (IN)

IMA Global Growth (IN)LIBOR GBP 3 Months (IN)

Percentage Growth Total Return, Tax Default, In GBP

10 Years From 30/09/1998 To 30/09/2008

Perc

en

tag

e G

row

th

-25

0

25

50

75

100

125

150

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

e80

65

56

37

User may have modified the original chart and axis titles provided by Lipper.

In-depth. Informed. Independent.

Managing investment portfolios for clients

In summary Regulatory environment is the key driver

Outsource to compliment skill set

Multi-manager, asset allocation models and professional fund research are outsource options

Embed your outsource solutions within your TCF regime

In-depth. Informed. Independent.

In-depth. Informed. Independent.

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