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Client, asset knowledge not the same

SMSF advisers looking to formulate an investment strategy for their clients need to recognise that knowing the client and knowing the assets in the portfolio are not the same, according to an investment specialist.

“There is a very common misconception out there applied by many in the adviser world and that is that know your client means know your asset, when in fact the two are extremely different,” Lincoln Indicators chief executive Elio D’Amato told delegates at the SMSF Professionals’ Association of Australia 2013 State Technical Conference last week in Perth.

D’Amato pointed out knowing the client was about understanding the client’s goals and what they were looking to achieve from their investments. As such, it was an integral part of formulating the investment strategy of an SMSF.

“When it comes to developing an investment strategy the adviser will need to ensure it is absolutely aligned to the client’s objectives so an effective roadmap can be built that not only takes them on the scenic route, but gets them there in the quickest possible time,” D’Amato said.

Imperative to the process is client engagement that involves making the client feel they have had significant input into the construction of the investment strategy and managing their expectations.

“If you engage you clients early on, right from the get go, they will be a client for life. The more you know about your client, the more value you can provide in delivering that advice and that helps add to your value proposition,” D’Amato said.

Knowing your asset, in contrast, was about understanding the characteristics of assets, such as risk and return, diversification and liquidity, he said.

However, he stressed the importance of not placing too much emphasis on the risk element.

“Both the adviser and the client should be focused on the desired outcome of the asset rather than the risk characteristics of the asset,” he said.

Importantly, he advised against what he called double dipping on the risk assessment.

“If the client is very conservative and has a very small allocation to equities, that’s fine, but then don’t double dip on that and then go ultra-conservative within the equities portfolio as well.”

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