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"TAMRIS" - Setting standards

Independent, Impartial, Objective

Cost components

We can break the components of the wealth and asset management process into specific components and we can assign costs to each of these components. These components are stock selection, asset allocation, personalisation & planning and management.

Stock selection

Stock selection is the primary component of active asset management. If a mutual fund or an Exchange Traded Fund is purchased, this component has been delegated and your advisor cannot and should not receive a return on that component.

Asset allocation

This is where stock selection is delegated (mutual fund or ETF is used) and the manager decides the allocation to styles, market components and global markets. Proper asset allocation, like stock selection, is derived from a valuation framework, itself determined by an investment style.

Third party asset allocation tools and services represent delegation of asset allocation. What this means is that someone else works out the asset allocation. In this case your advisor has also delegated the return on this component, which means he or she should not be charging you for it.

If an asset allocator is taking a passive approach to allocation, then he or she must reduce this premium via the selection of index fund components and also charge a lower fee for their service.

If you advisor has delegated asset allocation and stock selection, they cannot earn a return on these two components.

Many advisors do not do the stock selection, the asset allocation, or the actual management, yet, they receive the same return per unit of funds under management that most asset managers receive and, more if we include the up front commission. This is not appropriate conduct, the industry is clearly operating with its own interests in mind here.Text Box:  
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Personalisation & planning

This is the personalisation of portfolio structure to client risk aversion and liability profiles.

Portfolios should be constructed in accordance with the interaction of client lifetime financial needs (liability) and risk profiles and a firmís investment strategy. Portfolios should exactly reflect client needs, preferences and expectations and protect financial needs against significant risk at all times.

Inappropriate portfolio structure can result in unnecessary transactions at critical points in the stock market and economic cycle, affecting return, increasing risk and costs. Appropriate portfolio structure can significantly enhance long term total return, reducing costs and risk.

If this component is not being managed, then the advisor cannot charge a fee for this component. Whether this component is being managed can be assessed by analysing a firmís portfolio construction methodology and their historical and planned portfolio transactions.

It is debatable whether many investment and financial advisors are effectively and actually managing this component.

If not, what is the investor paying. Well the investor is paying for the distribution costs of the products and services they receive.

Management

This is the management of the portfolio structure determined by stock selection and/or asset allocation and personalisation and planning. If you do not determine either stock selection or asset allocation you cannot be rewarded for the management of the portfolio.

Working out what an advisor is doing and is not doing is easy for TAMRIS, but a complex process for the individual investor.