Non-Discretionary Management
Our non-discretionary management provides to our Clients, advisory services related to investment strategies or portfolio issues, while ensuring that our Clients maintain full control on any decision making on portfolio investments. The purpose of this service is to better integrate these assets into the investors financial and strategic plans, to provide independent oversight and to create foundations for sound decision-making and effective financial planning.
Challenges for investors
Uncertainty of future portfolio performance
The future outcome of today’s investment decisions is unknown. On one hand no one can predict with absolute certainty what may happen one, two or ten years from today, on the other hand investing is not black or white, win or lose. Its all about predicting potential investment outcomes, within a range of probabilities. Although we are uncertain about the future, it is crucial to understand where we are standing today, prepare and adjust -if necessary- our investment plans & portfolio and act according to our expectations about it.
Active vs Passive investing strategy vs smart beta strategies
Active investing means investing in funds whose portfolio managers select investments based on their independent assessment of each investment’s worth. The goal of active managers is to “beat the market,” or outperform certain “benchmarks”. In principle active managers charge higher fees than passive managers due to higher research costs or more frequent trading etc.
When passive investing, the passive managers goal would be to match the performance of certain market indexes rather than trying to outperform them.
Empirical evidence shows that the average active manager (active investing) underperforms (performance net of fees) the market (passing investing). Relatedly an active manager its not good enough to be average. She/he needs to be consistently a top-quartile active manager.
Even if an investor believes in superior performance of active investing, she/he also needs to believe that she/he is able and capable of selecting consistently, ex ante, the top quartile active manager(s). Unless the average investor could identify and concisely correctly select successful top quartile (top 25%) active managers, she/he is better off with indexing.
Smart beta strategies create a hybrid solution that retains the attractive future of both passive investing and active management. Such strategies offer characteristics that emphasize efficiency, transparency, low turnover, improved diversification and capacity and lower fees.
Asset only vs Goals based investment.
Asset-only approaches to asset allocation focus solely on the asset side of the investor’s economic balance sheet. Liabilities are not explicitly modelled. In contrast,
Goals-based approaches to asset allocation, focus on achieving financial goals, presented as liabilities in the economic balance sheet . Each goal is associated with cash flows, a distinct time horizon, and a risk tolerance level expressed as a required probability of achieving the goal.
We believe that asset allocation focused solely on Asset-only approach can lead to inefficient investment decisions that could expose the individual investor to unnecessary levels of risk. Goals based approach can create a foundation for sound decision-making and effective financial planning. Investors may achieve better outcomes if they re-evaluate the planning process, assess their current life issues and review future aspirations prior to investment selection. When life circumstances and priorities change as they inevitably will financial goals will change as well. Only those individuals who employ a holistic approach to planning can easily identify and address those areas of their financial lives that are still working well and those that may be hindering their financial well-being.
Common Investor Planning Errors that should be avoided:
Failing to consider the fact that investing should be approached based on possible outcomes and how likely these outcomes are i.e probabilistic approach of investment.
Failing to set quantifiable and actionable investment goals, which are ranked based on their importance and their required probability of success.
Failing to have a Plan “B”, when setting the investment objectives.
Failing to consider that it is not only investment returns that matters, but the sequence of returns is also very important. Systematic withdrawals during bear markets exacerbate their effects, causing portfolio values to fall to levels from which they may never recover.
Failing to consider that risk has two faces: Volatility of returns and risk of permanent loss. It is the latter that bears the “most” pain for investors. Risk can be estimated or modelled, but never surely known.
What we can do for our clients
We assist our Clients to navigate the investment challenges and avoid common investment pitfalls that may substantially affect their investment portfolio and their future aspirations.
Perhaps equally important, we place life circumstances at the centre of financial decision making so that Clients may find more meaning in their actions regarding investment decisions.
How it works
In principle we have a holistic approach, when discussing with the Client her/his investment decisions. We are advising or assisting individual investors on the following matters:
Assisting our Clients in preparing an Investment Policy Statement appropriate for Goals based asset allocation. The investment policy statement (IPS) is a written planning document that describes a Client’s investment objectives and risk tolerance over a relevant time horizon, along with the constraints that apply to the Client’s portfolio.
Educating or assist our Client(s), in matters related to investment strategy and asset allocation. Discuss with Client potential investment biases that she/he exhibits and suggest ways of mitigating them or adopting them when constructing a portfolio.
Run “customized” Monte Carlo simulations of each investment goal. In this way projections are expressed in terms of probabilities and the investor has a better view of potential outcomes and the ex-ante probability in which those events are taking place. For instance, one outcome might be that “there is a 95% chance you will not run out of money in retirement”.
Advise Clients on restructuring existing portfolios.
Review IPS prepared by third parties.
Review and supervise existing portfolio mandates.
Discuss with Client potential investment biases that she/he exhibits and suggest ways of mitigating them or adopting them when constructing a portfolio.
