Daniel Stansall, independent financial adviser, Barnet, North London
Daniel Stansall IFA Barnet-Monitor your investment plan to avoid portfolio drift
Wednesday 21 June, 2017
This case study ‘Monitoring your investment plan to avoid portfolio drift' is part of our ‘The value of an independent financial adviser’ series. Read Simon Hawker, independent financial adviser St Albans – The value of an independent financial adviser.
Daniel Stansall is an independent financial adviser in Barnet, North London, Hertfordshire. Daniel is a member of our North London financial planning team.
Current situation
Daniel Stansall, independent financial adviser, Barnet, says:
‘A few years ago, I was approached by Mr V, who was close to retirement. Although he had a sizeable investment portfolio, he was invested in many different assets held in a variety of places. He had not been checking the investment values or reviewing the asset mix and hadn’t regularly been getting financial advice. Also some of the investments he owned had made large capital gains, which if sold would incur tax charges. He had also not been investing annually in ISAs so he wasn’t taking full advantage of tax-efficient investments.
When you first invest money, you and your independent financial adviser will ascertain your attitude to risk. Investments will then be suggested that, when combined together, match your attitude to risk. If these investments are left and not reviewed, then over time the asset allocation will change. This is known as portfolio drift. Certain asset classes will perform better than others and over time the mix will change. If the growth assets outperform the defensive assets then the resulting portfolio will have a higher risk profile than was originally intended. Conversely, if the opposite is true, the portfolio will have a lower risk profile than intended. If the portfolio has a higher risk profile than the client requires, any periods of negative performance could be in excess of what the investor is happy to accept. If the portfolio is too conservative the growth might not meet expectations, which could hamper future plans.
How Daniel Stansall added value with his independent financial advice
1. Simplified Mr V’s investment portfolio
Daniel Stansall simplified Mr V’s investment portfolio and brought all of his investments together into one place so they could be easily managed, but more importantly Mr V could regularly check the value of his portfolio and felt in control of his financial situation.
2. Introduced appropriate and relevant asset allocation based on Mr V’s attitude to risk
Daniel Stansall discussed and evaluated Mr V’s attitude to risk and produced an asset allocation that was appropriate for him. As a result he recommended changing some investments in his portfolio.
3. Invested tax-efficiently
Unfortunately Daniel Stansall couldn’t fully implement the investment plan immediately due to the large capital gains that had built up, as it would have created a large tax liability for Mr V. Mr V had been making use of his capital gains tax allowance during the previous four years. This enabled him to benefit from tax free investment gains on some of his investment sales. The CGT allowance is currently £11,300 in the 2017/18 tax year. Mr V had also made full use of each year’s available ISA allowance.
4. Regular financial reviews to avoid portfolio drift
Daniel Stansall met Mr V annually and ensured that his portfolio targeted the level of risk that had been agreed. This gave Mr V confidence that Lonsdale Services was actively ensuring that portfolio drift would not be a problem for him. Daniel Stansall also regularly checked that Mr V’s appetite for risk remained the same.
Key considerations for clients looking to monitor their investment plan to avoid portfolio drift
• Consider simplifying your investment portfolio so it is easier to manage and monitor
• Check your investments regularly to ensure ‘portfolio drift’ does not affect your investment portfolio
• Meet your independent financial adviser regularly to review your portfolio
• At your annual review meeting always discuss your risk profile to check your views haven’t change. Make changes to your investment portfolio if necessary.
Summary
Mr V now has a portfolio that is tax-efficient and appropriate for his attitude to risk. By meeting Mr V annually, Daniel Stansall can ensure that this will continue.
Please note the value of investments may go down as well as up. The Financial Conduct Authority does not regulate Tax Planning.
Other case studies in 'The value of an independent financial adviser' series:
Mark Bowen, independent financial adviser, St Albans - Reviewing your defined benefit pension scheme,
Deb Nolan, independent financial adviser, Leeds / Bradford – Understanding your financial entitlements.
Simon Prestcote, independent financial adviser, Barnet, North London – Generating an income following a property sale.
Neil Homer, independent financial adviser Stafford - Modelling different financial planning scenarios.
Simon Armstrong, independent financial adviser St Albans - Investing the proceeds of a business sale
Richard Porter, independent financial adviser, St Albans –Generating tax efficient retirement income
