The 2019 VIP Review
Last week, I wrote about the passing of John Bogle, the inspirational force behind the rise of better-value and more efficient investment solutions. I mentioned that, in our own small way, the ValidPath Investment Proposition (VIP) owes a great deal to this man's work and deeply held convictions about serving our clients.
As it happens, the formal annual review for our VIP took place this Wednesday. Due to ill-health I was not able to attend, but two of my ValidPath colleagues, plus five of our Members, plus four of Parmenion's management team were in attendance. By all accounts it was a very useful, constructive day - but then it always is. This is our eighth formal annual review of the investment proposition, since we originally launched in 2011, and it is a continual surprise to me how little needs to be changed. Perhaps I should not be so surprised by that, given the extensive research by individuals such John Bogle, and other providers such as Dimensional.
Working with Parmenion in this sort of context is always a delight. It is not just the very great care that is taken with the technical aspects, due to the belief that these issues matter in themselves, rather than simply because they might have 'compliance implications'. No, what continues to reassure is the firm, unwavering commitment to delivering investment solutions that are simply better for the client, and a corresponding aversion to changing things because they might look better in the short-term, or perhaps arising from the kind of subconscious herd instinct that now prevails in so many sectors. That kind of ethic is as valuable as it is rare in today's marketplace.
We'll be publishing the results of this year's review to our Members - and, as usual, there will be a fully-updated User Guide, as well as the full panoply of platform due-diligence to assist those Advisers who want to use the VIP. We continue to offer this to our Members as just one potential solution that they may select for their clients, but one against which the main alternatives may reasonably be benchmarked. In the meantime, it is worth reflecting on what an efficient, risk-graded investment solution actually looks like in practice:
If the charts are less clear than you might like, it's worth stating the obvious: here are eleven risk-grades that adhere as closely in 2019 to the efficient frontier as they did in 2011, and in every intervening year. There are plenty of solutions out there where the relationship between risk and reward is much less obvious, and the VIP is testimony to a particular way of delivering the right kind of outcomes to clients. It is, however, worth noting that the VIP is a particular kind of thing, as solutions go:
Our models are more concentrated towards the centre of the efficient frontier spectrum. This tends to be because they are more defensively-modelled than some alternatives, and this results in a shift towards the lower end of the risk-spectrum. What it also means is that, from an advisory perspective, the outliers tend to drop away, allowing the Adviser to focus on the range of solutions which are more likely to result in beneficial outcomes for the client (the overarching truth of normal distribution curves prevails in this context). In practice, this means that we have to work a little harder at the risk-profiling stage in the due-diligence process, but the good news is that the client outcomes from Parmenion's own risk-profiler map accurately onto the correct solutions - and we are on the cusp of making that same mapping precision available to our DeFaqto Engage users.
Risk-mapping is everything. Once the client understands the kind of investment solution on offer, and appreciates that this is not going to be some shoot-the-lights-out, seat-of-the-pants exercise, then the VIP does exactly what it says on the tin. And for clients whose lives lack stimulation, then there are (more expensive) alternatives out there.