a unique model portfolio service for IFAs

a unique model portfolio service for IFAs Save your clients money by charging them more... Assetfirst is a unique model portfolio service designed...
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a unique model portfolio service for IFAs

Save your clients money by charging them more...

Assetfirst is a unique model portfolio service designed to help Independent Financial Advisors comply with the demands of the Retail Distribution Review (RDR) by adopting a recurring fee charging model at a level that improves profitability by controlling the costs of investment management. The Assetfirst service provides IFAs with the intellectual property to create and maintain their own range of sophisticated, low-cost, riskgraded, multi-asset portfolios on their favoured wrap or supermarket platforms. Unique, inventive and independent, Assetfirst brings together all aspects of investment management under one simple fee structure. The result: A new approach to investment management in the IFA arena which takes into account your firm’s size and structure, philosophy and future focus.

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Unique, fee-based model portfolio service for IFAs: assetfirst.co.uk

2 Total Investment Management The Assetfirst guided architecture service provides Independent Financial Advisers (IFAs) with the intellectual property to create and maintain their own range of low-cost, risk-graded, multi-asset portfolios on their favoured wrap or supermarket platforms. Assetfirst provides the means of robust portfolio construction and management for a fraction of the cost of providing it in-house, helping firms deliver a sophisticated, transparent, cleancosted investment service. With no links or ties to any third party we are demonstrably platform neutral; as a result you can be confident that working with Assetfirst will be free of any conflicts of interest. We invoice your firm a fixed monthly fee regardless of the volume of client assets allocated to the portfolios. Our non regulated status ensures that there is no conflict of interest. We do not want custody of your client assets - you can run the Assetfirst portfolios anywhere that can offer access to the underlying securities. Investment Advice

assetfirst Model Portfolios

IFA Financial Planning Advice

Platform & Product Selection

Total Investment Management

Strategic Asset Allocation

Security Selection

Strategic Asset Allocation is concerned with the efficient trade-off between risk and return. Assetfirst uses a rigorous Mean-Variance Optimisation (MVO) process to construct a series of Strategic Asset Allocation templates. We consider not only domestic and international equities & bonds but also alternative asset classes such as commodities, real estate and hedge fund schemes.

Meticulous Security Selection procedures ensure accurate replication of important asset allocation decisions. Assetfirst provides a top-down security selection process focused primarily on passive investment vehicles including Unit Trusts, Open-Ended Investment Companies, Investment Trusts and Exchange Traded Funds. We frequently supplement these investigations with careful quantitative analysis.

Tactical Asset Allocation

Unique Delivery

Tactical Asset Allocation is a powerful strategy that seeks to direct capital within the Strategic Asset Allocation framework toward asset classes with the highest potential for appreciation and away from asset classes with greater potential for loss. Assetfirst’s strategy uses proprietary research across the full universe of asset classes based on current and forecasted economic conditions.

Assetfirst offer a unique delivery system, providing IFAs with monthly updated portfolio positions which they can then apply to their client portfolios as they see fit, either through the model portfolio functionality of most major Wraps and platforms or through direct wrappers such as Offshore Bonds, SSAS & SIPP. In addition Assetfirst will provide the IFA with a bespoke investment manual detailing the portfolio construction process along with unbranded monthly tactical reports and portfolio factsheets showing relevant asset allocation positions and model portfolio performance.

Unique, fee-based model portfolio service for IFAs: assetfirst.co.uk

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Asset Allocation is the Key At the heart of the Assetfirst Service sits a range of risk-graded model portfolios which have been developed using proprietary research across the full universe of asset classes. Central to the construction of the portfolios is our belief that asset allocation - not security selection - is the key driver of portfolio returns. To precisely fulfil our asset allocation requirements at the lowest possible cost, where possible, we use Exchange Traded Funds (ETF) and Index Tracking Funds. Our Balanced Portfolio, which has exposure to 15 sub asset classes has a TER of just 0.41%...

Portfolio

Defensive

Defensive to Balanced

Balanced

FTSE 100







FTSE 250







Balanced to Aggressive

Aggressive

Balanced High Yield











Smaller Companies











High Dividend























USA EU











Japan









✔ ✔

Asia Pacific









Emerging Markets









UK Gov Conventional









UK Gov IndexLinked









Corporate IG









Corporate SIG









Property



Commodities





✔ ✔

















“Advisory firm Provisio Limited has also launched what I think could be an equally deadly salvo in the form of its Assetfirst service which is being run in collaboration with Cormorant Capital strategies...” David Stevenson FT columnist and consultant

Asset Allocation Example Holdings within the Assetfirst Balanced Portfolio Exposure

TER

Yield

BGI iShares FTSE UK Dividend Plus

Holdings

6.00%

0.40%

4.45%

BGI iShares FTSE 100

10.00%

0.40%

2.88%

Lyxor FTSE 250

0.00%

0.35%

2.02%

BGI iShares Euro Stoxx Small Cap4

3.00%

0.40%

2.00%

BGI iShares S&P 500

6.00%

0.40%

1.28%

BGI iShares MSCI Europe ex UK

3.00%

0.40%

2.32%

Lyxor Japan Topix

0.00%

0.50%

0.60%

iShares MSCI AC Far East Ex Japan

3.00%

0.74%

1.34%

Lyxor MSCI Emerging Markets

5.00%

0.65%

0.80%

SWIP Defensive Gilt

4.00%

0.90%

0.70%

BGI iShares UK All Stocks Gilt

5.00%

0.20%

2.69%

BGI iShares Index-Linked Gilts

6.00%

0.25%

3.51%

BGI iShares Corporate Bond

20.00%

0.20%

5.20%

AEGON High Yield Corporate Bond

5.00%

1.10%

6.57%

BGI iShares FTSE EPRA UK Property

14.00%

0.40%

3.13%

Lyxor Commodities

10.00%

0.35%

0.00%

Strategic Asset Allocation

100.00%

0.43%

2.64%

Tactical Asset Allocation

100.00%

0.41%

3.02%

For smaller portfolios or where regular premiums are being paid we realise that the dealing costs associated with ETF investment may be an issue. In addition to this certain investment platforms do not allow access to ETFs. For these reasons the Assetfirst service includes a mirror range of portfolios which utilise traditional index tracking funds instead.

Example Holdings within the Assetfirst Balanced LITE Portfolio Holdings

Exposure

TER

Yield

18.00%

0.55%

2.50%

HSBC FTSE 250 Index

0.00%

0.27%

2.07%

Vanguard US Equity Index

10.00%

0.20%

1.30%

HSBC European Index

7.00%

0.37%

2.51%

HSBC Japan Index

0.00%

0.37%

1.12%

HSBC Pacific Index

5.00%

0.37%

1.51%

Vanguard UK Government Bond Index

3.00%

0.25%

2.70%

Legal & General All Stocks I-L Gilt Index

11.00%

0.25%

1.40%

Vanguard Global Bond Index4

20.00%

0.25%

2.00%

AEGON High Yield Bond

11.00%

1.10%

6.60%

Standard Life Select Property

15.00%

1.86%

3.40%

Strategic Asset Allocation

100.00%

0.66%

2.76%

Tactical Asset Allocation

100.00%

0.65%

2.70%

Legal & General UK Index

Unique, fee-based model portfolio service for IFAs: assetfirst.co.uk

Strategic Asset Allocation Assetfirst has developed its own proprietary Strategic Asset Allocation (SAA) methodology following a rigorous, six-step process and forms the bedrock of a top-down investment management programme.

Risk Budget

Opportunity Set

Risk-Return Vector

Risk Budget

Opportunity Set

Risk-Return Vector

Our process begins by identifying an appropriate risk budget - a ceiling for exposure to ‘risky’ assets - for the median risk SAA in a series of templates. The solution to this problem will have a fundamental influence on the resulting range of SAA templates, forming the pivot upon which both lower and higher risk templates will hinge.

The opportunity set defines the spectrum of asset classes and sub-classes that will be included as a matter of course in the SAA. The asset classes that make up the opportunity set may include domestic and international equities & bonds, real estate, commodities, hedge fund schemes.

The description of the risk-return vector is dependent upon the chosen method of identifying an individual investor’s ‘attitude to risk’ – usually in the form of a risk questionnaire. Broadly speaking the risk-return vector is the distance between SAA with the lowest risk on one hand and the highest risk on the other as well as the angle at which risk increases.

Strategic Asset Allocation

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Doctrinal Set

Mean-Variance Optimisation

Stress Tests

Doctrinal Set

Mean-Variance Optimisation

Stress Tests

The doctrinal set is concerned with the intended method of managing the mix of assets over time. Will the SAA be frequently or infrequently re-balanced, whether some form of active asset mix management will be employed?

We employ a mean-variance optimisation (MVO) technique to identify the appropriate range of SAA templates. The generalised MVO method has the advantage of being widely described in financial texts and research publications. Harry Markowitz, the architect of Modern Portfolio Theory, reduced the optimisation problem to that of finding mean-variance efficient portfolios. Efficient portfolios have the highest expected return (the ‘mean’) for a given level of risk (the ‘variance’) or the lowest risk for a given level of expected return.

The solution to the MVO problem is dependent on a large number of assumptions (close to 400 in some cases), including estimates of prospective risk, return and paired correlation coefficients for each asset and sub-asset class. The uncertain nature of these assumptions is a source of weakness which we try to limit by applying both forward and backwardlooking stress tests to the full range of SAA templates. This provides a wealth of data to support adviser and investor understanding, particularly of the risks associated with investment.

Unique, fee-based model portfolio service for IFAs: assetfirst.co.uk

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Tactical Asset Allocation Tactical Asset Allocation (TAA) is a powerful strategy that seeks to direct capital within the Strategic Asset Allocation (SAA) framework toward asset classes with the highest potential for appreciation and away from asset classes with greater potential for loss over a given timeframe. Assetfirst employs a propriety research process that results in what we call Low-Frequency High-Duration Conditional Tactical Asset Allocation. We suggest relatively few, long-lasting shifts within the SAA framework based on observations about current relative valuations in global financial markets. These shifts reflect an active, rather than passive, investment management strategy. Assetfirst has a fundamental approach to research with a focus on macro developments such as fiscal policy, monetary policy, politics & geopolitics, current & forecasted economic growth and potential inflation paths. Markets evolve over time and Assetfirst is able to continually adapt to a changing environment and adopt cutting-edge research from industry and academic sources with relative ease.

“As we gradually move to a fee based market, initiatives such as Assetfirst’s innovative solution will become increasingly important to advisers who wish to benefit from the low cost and transparent benefits offered by exchange traded funds (ETFs)” David Bower, Managing Director, iShares

Tactical Asset Management

Example of Tactical Asset Allocation in a Balanced Portfolio Strategic Asset Allocation

Tactical Asset Allocation

Tactical Shifts

UK Equities : 24.0%

UK Equities : 19.0%

Overseas Equities : 17.0%

Overseas Equities : 17.0%

Government Bonds : 19.0%

Government Bonds : 15.0%

Corporate Bonds : 21.0%

Corporate Bonds : 25.0%

Property : 14.0%

Property : 14.0%

Commodities : 5.0%

Commodities : 10.0%

-5.0 0.0% -4.0 4.0 0.0% 5.0

Unique, fee-based model portfolio service for IFAs: assetfirst.co.uk

Security Selection What differentiates Assetfirst is our belief that passive funds should form the bedrock of the investment portfolio rather than disproportionately expensive actively managed funds. Passive funds aim to track the performance of a recognised index and do not involve the additional cost burden associated with attempts to beat the index. As a result passive funds have much lower costs allowing advisers to allocate greater resources to asset allocation within an overall cost budget that remains acceptable to investors. Most advisers are familiar with index-tracking unit trusts and OEICs. In recent months we have seen tremendous progress in the coverage and attractiveness of funds in this arena. The stimulus has been the changing regulatory environment and the gathering momentum of Exchange Traded Funds. Fashions come and go with true innovations sometimes lost in the noise but ETFs in particular are an idea with the potential to enhance investment performance and bring investor borne costs closer to the ideal. There are many different considerations when selecting the right passive fund for a portfolio. Cost and availability are important factors but there are many other factors to bear in mind. What the fund owns for example. Two indices that cover similar areas of market can differ greatly and will display unique risk and return characteristics. The total expense ratio of a fund is also a key factor, but there are other cost considerations too. The structure of Exchange Traded Funds and expected liquidity are key sources of risk which must also be contemplated. Assetfirst are acknowledged experts in this field and can offer guidance for you and your clients.

Security Selection & Cost Benefits Cost Benefits Assetfirst can help advisers to transform their business and introduce transparent fees based on total invested assets for a clearly defined and efficiently delivered investment service. By providing advisers with the ability to create and manage their own portfolios Assetfirst can add value at the

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heart of the client relationship. Our extensive use of low cost passive funds in the Assetfirst model means that fund management costs are a fraction of comparable wealth management services. Since adviser income is derived from transparent and clearly justified fee payments and not the commissions generated by the sale of investment funds or investment products, investors can be certain that their interests are aligned with those of their adviser - the greater the value of their investments the greater the fee income generated for the adviser.

Flat Fee Structure Rather than charging a percentage of funds under management for this service assetfirst charges its IFA clients a fixed monthly fee based not on client assets but on the number of Registered Individuals (RI) at the firm. Our fees start at £500 per month (+VAT) for firms with up to 3 RIs.

Average Underlying Fund TER (net of trail)

Total Costs on £10m total client portfolio

Regulatory Risk

+ VAT pm

0.41%

£48,200

Low

Pick your own individual funds

Nil

1.15% *

£115,000

High

Pick your own fund of funds

Nil

1.94% *

£194,000

Medium

0.50%

1.15% *

£190,000

Low

Nil

1.15% *

£115,000

Low

Portfolio Management Method

3rd Party Costs

£500

Outsource to discretionary fund manager Traditional model portfolios

*source; Lipper Fitzrovia 2008

Unique, fee-based model portfolio service for IFAs: assetfirst.co.uk

12 Monthly Tactical Report Assetfirst will provide you with a monthly tactical report detailing any updated portfolio positions for you to apply to your client portfolios as you see fit, either through the model portfolio functionality of most major Wraps and platforms or through direct wrappers such as SSAS, SIPP and Offshore Bond. Our tactical asset allocation decisions are forward looking and are typically appropriate for between 6 to 18 months and therefore you can choose to rebalance clients to the tactical positions at intervals that suit your business model. The monthly tactical report also includes a detailed independent macroeconomic commentary on all major asset classes for you to use in client reviews.

Compliance Support From a compliance perspective Assetfirst will provide you with a bespoke Investment Manual detailing the portfolio construction process along with the unbranded monthly tactical reports and portfolio factsheets showing relevant asset allocation positions and model portfolio performance.

Protect Your Business By using the Assetfirst service and keeping investment advice “in-house”, you will retain your place at the centre of the client financial planning relationship. This will enable you to transition the bulk of your existing clients from a typical 0.5% trail commission arrangement to a 1.00% adviser fee position and in most cases - at the same time reduce the overall charges that they face. Visit our website at www.assetfirst.co.uk or call 01462 687 371 for more information.

“Assetfirst’s unique service has enabled us to adopt a profitable recurring fee investment solution that is in keeping with the Retail Distribution Review.” Michael Broom CFP, Director. H.B. Dobbin Financial Planning Limited

Passive investment specialist IFA Andrew Whiteley, Independent Analyst Steve Williams and former discretionary fund manager Philip Bailey are the team behind Assetfirst, a unique, fee-based, model portfolio service designed to assist other advisers to comply with the demands of the Retail Distribution Review (RDR).

Andrew Whiteley DipPFS Andrew has been an IFA for over 23 years. He set up WKH Financial Services Limited in conjunction with WKH Chartered Accountants in 2003 and the firm now manages over £65m of client funds. In 2008 Andrew launched Provisio Wealth Management a wrap-based service underpinned by a range of risk graded model portfolios constructed and managed in conjunction with Cormorant Capital Strategies using Exchange Traded Funds and Index Tracking Unit Trusts. In January 2010 WKH Financial Services Limited was renamed Provisio Limited in recognition of the growing importance of the wealth management service within the business.

Steve Williams IMC Steve has worked in the IFA industry for 15 years. Much of his experience analysing and advising on the global capital markets was gained whilst working at a senior investment management level with a leadingedge City IFA firm. During his time there he successfully guided high net worth investment portfolios through the dramatic post millennium bear market and subsequent credit-fuelled recovery. Now, as managing director of Cormorant Capital Strategies Limited he works on a broad range of investment management projects. Cormorant, an independent investment consultancy firm unique in catering only to professional investment advisers, was launched in 2005.

Philip Bailey IMC Philip joined forces with Andrew Whiteley in 2008, working on the Provisio Wealth Management service, Prior to that he worked as a Senior Investment Manager at a large private client investment firm. He originally joined the industry in 1986, as a trainee asset allocation manager. This experience foundation gives him a unique insight into the passive/active fund management debate.

Assetfirst Portfolios LLP PO Box 401 The Nexus Building Broadway Letchworth Garden City Herts SG6 9BN Tel: 01462 687 371 [email protected]

assetfirst .co.uk

Designed and Produced by: The Detective Agency Ltd. www.detective.co.uk Tel: 01424 774771

The Assetfirst Team