Financial Services Guide (FSG): Importance, Requirements & Contents | James’s Portfolio Review

Before giving any financial advice to a prospective client every financial planner must have a thorough understanding of the clients’ expectations, reservations and requirements. In addition, the financial planner must get all the financial details of the prospective client so that the financial planner can design the services to be provided to the prospective client as per their needs. The financial planner may use the fact finder document and the risk profile assessment document to gather sufficient information about James’s needs and objectives.

After James fills up the fact finder and the risk profile assessment document, I shall go through the answers given by James; this would help me analyze the requirements of James in a better way. Once I have I gone through the documents, I will check if there are any questions that James has not answered. If James has answered all the questions I will ask James to provide me with the documents he prepared while doing the research for buying the shares and the documents of the shares he had purchased or other documents that he may have concerning the investments he made. However, if James did not answer some of the questions in the documents given to him, then I will discuss those questions with him and see whether he is comfortable in answering those questions or not. This can be done by seeing his body language and facial expressions and the manner in which he answers the questions that he was uncomfortable in answering.

Answer (a)

The two questions that I would ask James are as follows –

1. What is your annual expected earning rate per annum?
2. How long do you wish to keep the money invested in the portfolio?

Part A

Before providing any financial service to a client every financial advisor must be aware of the problems or the grievances that the client has experienced from his previous investments whether done by him or through any other financial advisor. As a financial planner I would ask James to provide me with all the documents that he may have with him of the shares he bought, the documents he prepared for himself while doing the research on finding the best shares to invest on, the methods that he used in doing that research, the mortgage papers (if any), the receipts of the dividend given by the companies, the fees or commission charged by the companies in buying or selling the shares, any other grievances he had while he was buying or selling the shares and so on. After getting the above mentioned documents from James I would be able to identify the administrative issues that he had faced while he was maintaining his existing portfolio. After identifying the issues faced by James I would find the possible solution to those problems and grievances. It is then only that I would be able to make the recommendations for solving the issues faced by James in maintaining his existing portfolio.

Part B

As a Financial Planner, it is extremely important to get the risk profile questionnaire filled by the prospective client. This would help in understanding the category of the investors in which the prospective client falls. After having the risk profile questionnaire filled by James, I analyzed it. Calculating the total points on each question answered by James the total comes to 305. This falls under the category of an aggressive investor that expects high growth. This type of investor is prepared in compromising the balance of the portfolio in order to achieve a higher return in the long run. The investments choices made by this type of investors are extremely diverse; this carries a high degree of risk which the investor is ready to take for earning greater returns. This is the correct profile for James because he is planning for long term investment and is ready to bear the losses if any in short-term. This can be said because James prefers to invest in equities. Investing in equities are volatile as the prices fluctuate everyday and there are chances of the prices falling below the purchase price which is not a concern for James. His main priority is the accumulation of wealth.

Answer (b)

The target asset allocation for James as per his risk profile is given as under-

James Currently has the following shares in the Portfolio-

James’s Current Portfolio is a well diversified portfolio. It can be seen that James has a sound knowledge about the share market and has done plenty of research before making any of the investments in the shares. However, James has not considered the correct proportion of the different sectors in his investment portfolio. This can be said because almost 54% of his investment is in the Metal & Mining Industry and Banking & Financial Services Industry. The current proportion in the above mentioned industry need to be changed in order to make the portfolio a lot more diverse and capable of earning higher returns with better flexibility. I would recommend James to buy the shares belonging to Bio-Technology Industry and invest a little more in Real Estate Industry. This would diversify the portfolio to a greater extent and would make the portfolio better in the longer run.

Short-Term Strategy

As a Short-Term Strategy, I would recommend James to invest in Online Savings Account because this has liquidity that is to say it can be easily withdrawn whenever needed. However, this would give a very low return but has the feature high liquidity. In addition to this, James can also invest in term deposit as this would give him slightly higher returns as compared with online savings account. However, in term deposits the amount of money invested would be locked in for the period of the investment.

This Strategy is suitable because there is no risk of losing the investment amount and there is extremely low risk that the value of the savings will reduce. 4-6% per annum return can be expected from this strategy. 

Medium-Term Strategy

I would advise James to invest in a balanced fund managed by a portfolio manager. This is a conservative option for investment and is perfect for investors having an investment horizon of 1 to 5 years. This strategy is suitable for James as risk in this strategy ranges from low to medium and has a medium volatility where the capital on an average goes up or down by approximately 15-20%. The return that can be expected from this strategy would 6-7% per annum.

Industry-wise James has made investment in the following sectors:

After analyzing James’s Portfolio, it can be seen that he has done quite a lot of research and has created a well diversified portfolio. It seems from his investment pattern that he favors Metal & Mining and Banking & Financial Services as he has invested approximately 54% of his money in the two sectors. James can divest some of his money from Banking & Financial Services and utilize it for investing in Bio-Technology and Real Estate Industry as this would diversify the portfolio a lot more. This will not only reduce the negative impact a fall in Metal & Mining and Banking & Financial Service Industry but it will also provide better returns. James should sell some of the shares held in the following companies-

After Selling the above mentioned shares, James should buy the following shares-

 Investing in the above shares would diversify the portfolio to a greater extent and provide additional returns in the long run.

Even though the share prices of Scentre Group is fluctuating and seems to be on a bearish trend, it is the best time to invest in their shares as they are a comparatively new company their shares prices are low. However, James wants to invest for the long-run and this company is perfect to invest for long term. In order to compensate for the losses that James may incur due to the investment in shares of Scentre Group, I would recommend James to buy the shares of Amgen Inc., this is a very old company and has a good record in the past and is currently performing well. So a combination of these shares is a lethal combination for a long-term investment.

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