AdvisoryEasy

4 min read · 651 words

What the seat actually does

An advisory seat recommends; the client decides. That single difference separates it from a discretionary mandate, where the manager decides and reports afterwards, and it changes almost everything about how the job is done.

Because the client acts, the client has to understand. A discretionary manager can hold something a client would never have chosen and be entirely within the mandate. An adviser cannot: the recommendation has to be explicable, the risk has to be understood before it is taken, and both have to be established rather than assumed. What is written down is not paperwork around the work — it is a large part of the work.

This page describes the seat. Nothing on this site is advice, and nothing here is a recommendation — see the notice at the foot of the page.

• Establishing the position — what is held, what is owed, what the money is for and when it is needed.
• Making a recommendation, with the reason it fits that position rather than a general reason it is a reasonable thing to own.
• Recording it — what was recommended, why, what was explained about the risks, and what the client then did.
• Reviewing it, because a recommendation that fitted three years ago describes a household that no longer exists.

A day, and where it goes

• Reviews. Going through accounts against what was agreed, which is the routine half. See running a portfolio review.
• Documents. The factsheet, the key information document, the prospectus — read before a product is put in front of anybody. See reading a KID and reading a fund factsheet.
• Costs. What a holding costs in total, stated in money rather than in basis points, because that is the form somebody can actually weigh.
• The awkward conversations — after a fall, when the question is whether anything has changed or only the price has.

What it is measured on

• Whether the file supports the recommendation. A good outcome with a thin record is still a problem; a poor outcome with a complete one is usually not.
• Complaints and their causes, which almost always trace back to something that was not understood rather than something that fell.
• Whether the portfolio still matches the profile after several years of drift.
• Assets and revenue, openly, and the tension between that measure and the ones above it is the honest description of the seat.

What it touches on this site

• Building an allocation — the playbook, which is the shape of the conversation.
• Sizing — how a position is sized and how much in one thing.
• What is being sold — funds, ETFs, unit-linked policies, and the difference between the first two.
• Why the client's return differs from the fund's — the question that arrives every year.

How it goes wrong

• Suitability treated as a form. A questionnaire answered once and filed is not a record of what somebody understands.
• Complexity nobody can explain back. If the client cannot say what the product does, the recommendation has not actually been made.
• Incentives pointing the wrong way, where what is remunerated and what fits are not the same thing — which is why disclosure of what is paid is a rule rather than a courtesy.
• Reacting with the client. The adviser's job in a fall is to be the part of the conversation that has not changed.

Concepts to master

• Risk tolerance and risk capacity are different. What somebody can bear to watch and what their circumstances can absorb often point opposite ways.
• Costs compound like returns, in the same direction and with the same arithmetic. See costs and fees.
• Diversification is not a number of holdings — see diversification.
• Where returns come from — the components, because a recommendation that cannot be decomposed cannot be explained.