Investment Philosophy
If you are sitting in Melbourne and wish to drive to Sydney, you have two choices. You can take the safest, quickest and cheapest route and go directly up the Hume Highway or you can go via Perth, a somewhat riskier, longer and more expensive option (including an opportunity cost). Although the Perth option does come with a materially higher buzz factor, the rational traveler won’t spend much time deliberating over which option to take.
The rapid pace of financial innovation over recent years has meant that private investors in Australia are increasingly being confronted with very similar decisions. Whereas the rational traveler is fully informed and can quickly quantify the risk/return trade-off for each travel option, the same level of insight is rarely available to the private investor. More often than not, an investor will be attracted to the “Perth Option” by its novelty and the promise of an exciting journey (i.e. high returns/high risk) rather than asking themselves whether there may be a safer and more cost effective way to achieve a comparable outcome.
In a world where investment products are becoming more numerous and convoluted, the Evans & Partners approach will always favour the simple over the complex. Before presenting an investment idea or product to our clients, we ask ourselves whether there is a more transparent, cost-effective, tax-effective, lower risk and liquid way of achieving the desired outcome. For many in our industry, such a question is considered less and less. They consider the “value” of a particular investment product or service to not be determined by the quality of the underlying investment thesis but on the basis of the profit margin which that product will generate for the manufacturer or distributor.
At Evans & Partners, we sell our advice and experience. We embrace financial innovation that allows us to enhance returns and identify/control risk in a transparent and cost-efficient manner. At the risk of being boring, we will always look for, and promote, the simplest investment solution for each individual client. We believe that the following factors are integral to this goal.
A primary investment objective which aims to generate returns that outpace inflation over the long term.
Appropriate diversification across a range of asset classes. The bull market never ends, it just changes asset classes. Over the long term, asset allocation is the simplest and cheapest way to manage market volatility, protect against the unknown and preserve your capital. As such, we see little reason why investors with a balanced investment portfolio, and a long term horizon, should be buying high fee products that offer capital protection and/or an absolute performance objective.
Appropriate portfolio construction. Portfolios need to be populated in a manner that is consistent with a client’s overall risk/return objective as defined by the strategic asset allocation benchmark.
Tax-effective investment solutions. Ultimately, investment performance can only be assessed on a post-tax, post-fee basis. Given the range of tax environments available to investors in Australia, we believe it is critical that our advice is sensitive to after-tax outcomes, particularly with respect to the management of Australian equity portfolios where we have access to the fully franked dividend (a beautiful thing!).
Cost-effective investment solutions. As our industry develops and promotes ever more exciting and unique ways to travel from Melbourne to Sydney via Perth, it applies similar ingenuity to the calculation and application of fees. While investment expertise, wisdom and tailored advice is a valuable service, investment performance – defined as return per unit of risk – should be assessed on a post-fee (and post-tax) basis and relative to the post-fee performance available from an index fund or leaving your money in cash. We believe that within the burgeoning universe of fee-heavy investment products/strategies the majority are found wanting when assessed on this basis – particularly over a long term time horizon.
Value liquidity (i.e. easy and timely access to your money should it be required). One of the lessons of 2007 has been to always put a value on liquidity! We believe if you invest in an illiquid security, an illiquid investment structure (e.g. a unit trust with monthly or quarterly redemptions), a fixed term (e.g. a 3-, 5- or 7-year structured product) or an investment strategy with a long-dated pay-off profile (e.g. private equity); you need to be compensated (post fees) for the lack of liquidity. Our investment advice takes this into account.
The relationship between corporatisation and private wealth management is inherently problematic. One is governed by economies of scale, client segmentation, product pipelines, a fixation with high margin investment solutions and an ongoing battle with internal conflicts. The other is governed by equity (all clients are equal), independence (advice free of internal conflicts) a lasting personal relationship and investment solutions that are determined by what’s right for the individual and not what delivers the highest return on assets.
Our investment philosophy is different because we have recognized, and contained, the contradictions which arise from trying to be both a rational corporation and a genuine provider of wealth management services. As others advocate complexity, we advocate transparency, simplicity and plenty of two-way communication.