PAM Guide to Wealth Management

Frequency of reviews

Regular communication with private asset managers is key to ensuring that investment returns remain on track. Ongoing monitoring provides a greater degree of control over a portfolio. The more frequently that reviews are carried out, the easier it will be to detect any deviations in the expected returns and, in turn, the level of acceptable, or agreed risk and vice versa.

There is no rule of thumb on how often you should review the performance of private asset managers or portfolios. The frequency of reviews will depend on a number of factors. One is the composition of the portfolio. If you are primarily invested in cash and bonds, for example, a portfolio review does not have to be conducted as frequently as if you hold equities. The more volatile the asset classes and the more aggressive the managers in your portfolio, the more closely they need to be monitored.

The time horizon over which you are trying to achieve your investment objectives will affect the frequency of reviews. If you are aged in your 30s or 40s and are investing for retirement, then you do not need to be as concerned about short-term volatility as if you are saving for school fees in five years time.

The frequency of reviews will also depend on whether you are monitoring the tactical or strategic asset allocation. As we explained in previous chapters, the strategic asset allocation is drawn up to reflect your long-term objectives and risk profile. Therefore, if your objectives and risk profile have not changed, there is little if any reason to change the strategic asset allocation.

When there is a change in your personal and financial circumstances, then you should review your strategic asset allocation. Such changes include a promotion at work, buying a new house, having a child, going through divorce, disability, or the death of an income provider.

Of course, reviewing tactical asset allocations will need to be done more frequently. This is because the tactical asset allocation is designed to take advantage of opportunistic investments. These are, by their nature, shorter-term investments.

There is a potential danger, however, that if your portfolio and private asset managers are reviewed too frequently, it can lead to a concentration on short-term performance. The key is finding the right balance between the focus on short and long-term performance.

The general view among wealth managers is that portfolio performance and asset allocation should be reviewed at least every six months, or annually. Part of the reason for this is to rebalance the asset allocation within the portfolio. If equities significantly out-perform other asset classes, for example, then after a year you may want to realise some profits, to bring your equity weighting back to the amount set in your original allocation. Your portfolio managers should be reviewing this constantly within the terms of their mandates, but you may need to consider rebalancing between managers if you have given them specific mandates.

Some advisers believe a high level review should be carried out every three months. The reason they give for this is that a review that includes a three or six month period to period analysis will highlight if a manager is performing within the constraints already agreed. These include whether the manager is remaining within risk/return parameters of the chosen benchmark and meeting expectations.

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