Business transition – investment planning options

This section continues our focus on business transition principles.  Mike Leeson takes a look at why investment planning options are so important in helping to build a sustainable business.

Investment planning options

When it comes to building a client portfolio, there are literally thousands of funds to choose from. Analysing each fund and carrying out the due diligence required takes time and expertise. Ensuring the right fund is selected for each asset class and blending individual funds within a portfolio is crucial; get it wrong and it can have disastrous consequences for the client, and can lead to complaints, litigation and the attention of regulators.

Building an investment process, known as a centralised investment process, can help advisers.  Having a robust, repeatable and recorded advice process in place to underpin client recommendations not only reduces the potential risk to an adviser’s business, but can also help to keep their clients’ investments on track.

Wealth management and investment planning forms part of the overall personal financial planning process an adviser follows when assessing a client’s financial needs and objectives. ISO 22222 is the International Standard for personal financial planning, and has been drawn up with the objective of achieving and promoting a globally accepted benchmark for individuals who provide the professional service of personal financial planning.


Typical investment process:

  1. Fact-find – this is an imperative first step in helping to understand a client’s investment needs, attitudes and objectives.
  2. Risk assessment for investing – this helps the adviser understand the client’s attitude towards investment risk, particularly their willingness and capacity to accept loss.
  3. Wrapper selection – following on from the fact-find, the adviser will be able to determine which product wrapper is appropriate.
  4. Suitability - this step is crucial in enabling advisers to make the right investment choice for different clients or different segments of clients who might have similar attitudes and preferences.
  5. Building a portfolio – the assets allocation should be designed to maximise returns for the client’s individual risk level.
  6. Fund selection – selecting the right funds for the client to build their portfolio is arguably the most time consuming part of the investment advice process.
  7. Ongoing review – it is important to review the portfolio periodically to ensure it still meets the client’s needs, and is performing in line with expectations.


Selecting the right investments can be the most risky and time consuming part of the advice process:

Building an investment process can help create a robust, repeatable and recorded advice process, but it doesn’t solve the risk of selecting the wrong funds for a client. Financial advisers that are both expert financial planners and qualified investment managers are few and far between. The two disciplines are actually very different, and require a different skill set.

Investment management, i.e. portfolio construction and fund selection, can introduce a layer of risk to an adviser’s business that is difficult to mitigate without expert knowledge. Something that regulators are beginning to focus on is the suitability of investment offerings to be demonstrated and recorded. This helps ensure any future challenges to investment performance can be refuted where the task has been correctly and diligently completed.

It is perhaps no surprise that financial planners are increasingly looking to delegate (but not abdicate) responsibility to those for whom investment management is a core business activity.  By delegating the investment process to a team of experts, advisers will not only simplify and reduce their compliance burden, but importantly, will be able to free up time which they can spend with their clients to discuss or review their broader financial planning needs.

Investment solutions available:

There are many investment solutions available to advisers looking to delegate some or all of the investment process to an investment professional:

  • Multi-asset fund – this is a fund which contains a cross section of carefully selected assets and funds. A fund manager will actively manage the fund on a daily basis.
  • Selected range of funds – an investment expert will research the market and provide a short list of vetted funds for the adviser to select from.
  • Model portfolios – these are researched portfolios compiled by investment experts to meet a specific risk profile; they are usually reviewed quarterly.
  • Discretionary services – where an investment professional, usually a Discretionary Fund Manager (DFM), provides a more bespoke investment service to the client. It is often more effective for the entire investment process to be outsourced to the DFM.

The decision to partner with investment experts can help advisers stay in control of the advice process, spend more time with clients, and helps reduce the risk of making poor investment choices. All these are important considerations in building a sustainable business.

Mimi Pienaar

Mimi Pienaar

Head of Practice Management, Masthead (Pty) Ltd