Your investment proposition. It’s one of the lynchpin documents of your firm, summarising how you manage your client’s money.
But how good is yours really?
We see plenty of very good investment propositions, but some common mistakes come up as well.
These are the five things we see most firms do well and the pitfalls you should to avoid when writing your own.
5 things advisory firms get right in investment propositions
Passion
Most firms know who they are, where they came from and why they exist.
Whether it’s in the background area of an investment proposition document, or dotted throughout, showing a little conviction in what you do and providing a healthy dose of personality is something which often works well even if it doesn’t come naturally . We’ve seen some very detailed, ‘ivory tower’ propositions which are a lot less convincing than an honest, punchy bit of writing from the gut. They are often just as good and occasionally better from a regulatory, if not grammatical, point of view.
Firm’s investment philosophy
Your broad investment philosophy is probably something you addressed some time ago.
Views on asset allocation, the value of active fund management, or how to properly achieve diversification, for example, tend to feature as an innate belief of many advisers. You should, of course, question those beliefs regularly and question whether they are still acting in your client’s best interests (as discussed in our tips article for building a great investment proposition). Assuming this is happening, however, most investment propositions articulate the approach of the firm well and in detail.
Tools used to support the proposition
Listing which tools are used is the easy part. Firms are also typically able to articulate why those tools were selected, the function they fulfil and the benefit to clients of the firm having them at their disposal.
Investment solutions and products/platforms used
Again, listing these is not a difficult job for anybody, so most firms do this well.
Where firms do get this wrong is in the explanation and bespoke commentary (see the point on ‘not using your own words’ below). It is important to fully explain why a specific solution, product or platform is appropriate and the factors used in its selection. Showing that you have considered cost, for example, is important. Independent research should be used to narrow down the available solutions, so this should always be referenced.
Regular reviews
Propositions are typically reviewed at least annually if you outsource and more regularly than that if you have create portfolios in house. The review section of your proposition should detail who is responsible for reviews, how they are carried out and why that format is appropriate. If you have an investment committee, for example, then document how and when the committee meets, and what the outputs are.
5 things advisory firms get wrong in investment propositions
Client descriptions/segmentation
Whilst segmentation is usually dealt with, in the vast majority of propositions the method of segmenting often centers on the client’s net worth, occasionally with a nod to retirement or accumulation.
More robust segmentation exercises take this logic further, considering a client’s position in their life, their overall life goals, the way they want to communicate during their planning with you and more besides. Niche financial planners might specialise in dealing with business owners looking to sell in 5 years’ time, or divorcees. These all come with very specific needs and behavioural traits. Services can be tailored very precisely. The message here is relatively simple: client segmentation is not just about indicating the net worth you want your clients to have. It must be more than this and give ample consideration both to the different types of clients you deal with and how your approach differs with each. Get it right and you’ll open up a lot more opportunities for referrals.
Approach for clients who require income
Firms are clearly advising clients who are in decumulation, but very few firms seem to have given thought to this from a strategic perspective haven’t defined a consistent approach. This is dangerous, particularly for multi-adviser firms, where a lack of consistency creates more risk.
Thought should be given in this section of your proposition to your approach when it comes to determining a safe withdrawal strategy, using cashflow modelling and reserving sufficient cash to avoid reverse pound-cost averaging, to name just a few issues.
Independent and impartial research
Every major decision in your investment proposition should be backed up by independent research from established sources. In the case of your centrally selected investment solution, for example, you should show that you carried out or consulted appropriate research when you made your selection. Historically, we know some advisers have allowed their outsourced investment partners, such as DFMs, to write their investment proposition for them. Hardly independent, and harder to prove you understand something you haven’t written yourself.
Not using your own words
Your investment proposition should not be a cookie-cutter document, lifted from somewhere else (and you will notice that the Sense template encourages you to add your own input consistently). Bespoke commentary allows you to explain the decisions you have made throughout the process of building your proposition, giving you ample opportunity to reference elements such as the independent research you have consulted and the level of questioning you have applied to your own thinking. Bespoke commentary as a whole shows that your document has been produced in a considered manner and whilst it should show that you adhere to standard regulatory guidelines, it also emphasises your firm’s own unique approach.
Link to service proposition
Having an investment proposition is separate to how that proposition is presented to clients through your service proposition. Your investment proposition should include specific reference to how it is implemented throughout your firm and how it informs the service you offer.
