On not reinventing wheels
It would be a great source of encouragement to think that financial services intermediation, and the narrower field of financial planning which we tend to focus on, could be an enterprise which is steadily developing, based upon a progressive accumulation of knowledge and a kind of market consensus of what is good, what makes sense, what delivers the right kind of outcomes for our customers. Indeed, there are times when this is the experience, and we are grateful for them whilst they last.
In practice, they do not last as long as we might like. For, counterproductively, there is the less predictable, less incremental, less steady phenomena within our marketplace, the things which tend to unseat much of the good that may have been, cumulatively, achieved to date. The primary sources for such matters tends, these days, to be of a regulatory origin, and at such times IFAs and Financial Planners have learned to become ultra-flexible limbo dancers. At such moments, reinvention becomes the governing mantra, rather than steady progress. My own view is that constant reinvention is never a good thing, as it gives rise to loci of unanticipated risk, and it is actually a hindrance to a pattern of accumulating wisdom. And, above all else, IFAs need to be wise.
Given that backdrop, imagine my satisfaction, therefore, when we conduct our ninth full annual review of our Centralised Investment Proposition (the 'VIP') and discover, based upon 1, 3, 5 year data, and on an assessment running back to launch in 2011, that we don't actually need to change anything. The key objectives underpinning our eleven risk-graded passive models have not changed since inception, because they define what is inside the tin. Across the full range of risk mandates, the models have behaved exactly as one would expect them to have behaved, and all of them have delivered returns consistent with, or superior to, the relevant benchmarks. The Platform (Parmenion) remains fit for purpose - indeed, it has just won yet another 'best of breed' industry award. The underlying assets within the eleven models are kept continually under review, and are demonstrably the most efficient (cost and tracking error) means of achieving the investment goals.
Yes, there are some issues we identify, and discuss together (there are senior Parmenion Staff, the ValidPath Team and several Members around the table). There are some minor tweaks which we might make, here and there, but that's the point: they're just minor tweaks, and they tend to be the kinds of thing which don't sit that consistently with a passive, strategic investment model. There's £150m sitting in these models, consistently, year after year, behaving exactly as one would expect, delivering outcomes which most clients are happy to live with - and never, ever having to involve the Adviser in the challenging matter of rebalancing. Boring, really.
It may just be my age, but, during that review meeting, I found myself asking the obvious question: why would I choose to handle things differently? Especially when, 'by handling things differently' what I might actually mean in practice, is a more expensive proposition, one which triggers admin conundrums which could give rise to complaints, one which requires the Adviser to second-guess the unguessable, or make claims about the future which we all know cannot be met. The VIP neatly avoided the car-crash of the Woodford debacle, protecting clients from the toxic interference of the big players which effectively undermined investor value. The VIP optimises liquidity, introduces huge diversification, removes the Adviser from the business of crisis management, and at a stroke makes the Investment Committee obsolete at a local firm level. That frees up people, time, resources - allowing you to focus on the client, the one who matters.
Clearly, there are other ways of skinning the investment cat. They involve a very different range of presuppositions about investment, and may well veer significantly in the direction of speculation. And, for the IFA on the ground, they invariably involve the reinventing of wheels.
Here's a recent article in Money Marketing by a ValidPath Member who has come to a very similar conclusion.