The considerations are:
COSTS
Costs can broadly be split in three distinct categories:
- The cost of advice – paid to the person with whom you interface and who will assist you with investment decisions and implementation. We prefer a fee-based remuneration (based on assets under management) as opposed to commission.
- The cost of administration – paid to the institution that will handle the administration of your investment, facilitate switches between fund managers or between asset categories and comply with the relevant legislation and disclosure requirements of the FSCA, etc.
- Fund Management cost – the fee payable for making the daily decisions regarding the managing of the fund.
We are acutely aware of costs, as the impact can be significant over the investment term. We go to great lengths to minimise costs, wherever possible.
TAX
Tax may be incurred on entry to an investment, while in the investment and on exiting the investment. This is an important consideration and may result in the use of certain products that ordinarily would not be considered, for example, insurance related products.
FLEXIBILITY
We must be able to switch between fund managers and asset categories at low cost and, if necessary, the investment must be easily liquidated. We prefer not to tie up investments, however advantages may exist and, where the circumstances dictate, an investment with a fixed-term could be considered.
COMMISSIONS
We prefer to avoid commission-based products, however, where these are appropriate, commissions are rebated to the client.
GUARANTEED PRODUCTS
No product can address asset category risk, political risk, sovereignty risk, inflationary risk, currency risk, institutional risk and mortality risk simultaneously. Therefore, guarantees will always be limited. Cash is suitable when looking for less volatile investments.
There is a tendency for investment institutions to offer guaranteed products at the least appropriate time in the investment cycle. Our process requires a greater understanding of one’s emotions, but is a more candid approach. We prefer to manage risk through diversification of asset categories, currencies, fund managers, etc., rather than to infer that we can avoid risk.
Most guaranteed products come with large, upfront, undisclosed commissions and other costs.
HEDGE FUNDS
This is an area that we have researched thoroughly, understand well and are licenced to offer, but choose not to use as part of our solution, at present, for the following reasons:
- The Hedge Fund industry relies largely on the use of derivative instruments. Derivatives can be abused and misunderstood and have, at times, resulted in enormous loss of capital.
- Commissions and management fees are often excessive.
- The only strategy employed by hedge fund managers that cannot be pursued by long only fund managers, is that of short selling.
- Performance is highly unpredictable and industry statistics are limited.
We prefer to invest in products that are easy to understand and that align with our approach to risk management.