Develop an investment plan for your client

This video tutorial explains how to use 'know your client' data to craft effective investment plans.


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A clear written plan is vital. It’s what will help you:

  • Define a portfolio’s purpose.
  • Measure its success at fulfilling your clients’ goals.
  • Establish and strengthen your client relationships.
  • Clearly articulate your client promise and deliver more consistent outcomes.
  • Protect your clients from the negative effects of emotional decision-making that can undermine investment portfolio effectiveness.

Here, we’ll show you how to use the data you’ve collected and turn it into an effective investment plan.

Consider the information framework that we’ve supplied. It will help categorise all of the client information you gathered during the ‘Know Your Client’ Phase. Categorising your client information will make formulating your clients’ plans that much easier.

The risk and return sections are particularly important. They define the after-tax return requirement consistent with acceptable risk tolerance and the clients’ financial goals. 

Depending on how many different goals they have, your clients won’t have just one ‘risk profile’. You will need to define the return requirements for each different goal.

You can present them the return side of the equation in three ways; expected return, expected goals and the historical probability of reaching their goals.

With historical asset class returns you should find a meaningful way to demonstrate the risks – including volatility, shortfall risk and maximum loss.

Having understood your client’s needs, it’s now time to develop an ‘Investor Policy Statement’ (IPS).

Many institutional investors rely on written agreements known as Investor Policy Statements. Successful advice businesses follow their lead and produce these as part of their investment advice process.

These agreements should reflect your firm’s Statement of Investment Principles and how you’re applying these principles to the client’s individual case.

The Investor Policy Statement should define the purpose and objectives of the portfolio, as well as how its success will be measured. It should also summarise the agreed investment strategy. 

A written plan like this launches productive communications and sets client expectations. 

They’re especially useful when markets go through inevitable periods of volatility. It also helps centre attention on the long-term goal, rather than short-term market noise.

By being able to demonstrate that all your decisions are guided by an agreed policy, you help guard against any misunderstandings that could lead to regulatory or even legal risk.

Now you’re ready to convert all the information you’ve gathered into an Investor Policy Statement to agree with your client.

Investment risk information:

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not a reliable indicator of future results.

Other important information:

This video was produced by Vanguard Asset Management, Ltd. It is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.

If this is to be used on third party websites for an audience of professional investors as the submission suggests I would also include the for professional investors disclaimer at the top.

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.

© 2018 Vanguard Asset Management, Limited. All rights reserved.