Defining Investment needs and objectives

The client has CAD (Canadian dollar) $1,000,000 to use as investment but requires a
clear direction/guide on where to invest these funds. As per the case study, it has been noticed
that the client has quite a high-risk appetite, which allows a medium/elevated risk to return
ratio. This gives a solid idea on the type of investments that may be suitable for the client.
The portfolio can be set up as a passive-aggressive portfolio with a mix of high-risk and
medium-risk investments. The client’s main aim is to appraise their funds and be able to have
passive income by the age of 65. This means that in 25 years, he is looking to retire and be
able to enjoy the fruits of the investments. The main objective is to obtain a clear rise in the
value of the investments with time. The client is ready to accept a medium to substantial risk
level which means that there will be a possibility to bear some drawbacks in the process of
the whole investment. The main aim of maintaining a portfolio is to balance out the risk and
to ensure that some existing securities are sold when it is the right time, and some are bought
at the right time. This play of trades can decrease or increase the size of the portfolio but still
manage it well to ensure a comfortable position is acquired.

As the client is interested in an appraisal of his funds with a certain investment, the
main aim for a financial advisor is to allocate the assets that the client should invest in. The
most important part is to analyze which assets are most advantageous to the client and then
make a careful selection of the securities. This paper includes a top-down approach towards
asset allocation. Utilizing this will allow a safe, and secure plan for the client to be able to
invest the funds and earn a good return in the future as it allows to understand not only the
performance of a company, but also the industry and the economy. This is one of the main
missions of the investment. It is required for the portfolio to be well studied and
professionally managed before and after investing. Even though, this is a form of passive
investment, the portfolio still needs to be managed according to the change in market/global
conditions or personal situations of the client.

Defining the Investor: This Investment Policy Statement exercises rule over the
personal investment portfolio of Mr. John Smith.

Defining the structure: Neelay Parmar, Nikky, Charity, Helen, and Aditya (Turbo
Advisors ltd), will act as financial advisors to Mr. John Smith. The financial advisors are
responsible for coordinating any updates to the Investment policy. Mr. John Smith will be
responsible for approving any changes to the Investment Policy Statement. Turbo Advisors
acts as fiduciary as an advisor to the Accounts of Mr. John Smith and takes into consideration
that all advice and decisions shall be made according to the best interest of Mr. Smith.

Governance: The team of Turbo Advisors ltd will be taking accountability of all the
changes that have to be made to the portfolio and the IPS of Mr. John Smith when needed,
and only with the permission of the client himself. Neelay Parmar will be responsible for
hiring or firing any external advisors, consultants, or vendors associated with the assets in the
portfolio. Turbo Advisors will be responsible for reviewing the asset and security allocation
of the Smith Investment account and will suggest improvements or revisions to Mr. Smith.
Turbo Advisors shall consider the correlation between the asset classes and the market
movement of the Toronto Stock Exchange, capital markets in Canada and the US, and the
changes in the interest rates, inflation and other tax rates. The risk policy will be managed by
Charity and will be monitored regularly by Helen from Turbo Advisors ltd.

Identifying Investor’s objectives: The overall investment objective is to make sure

that Mr. John Smith meets the earned income on the investment made by the year 2042. Mr.
Smith shall also earn return on his investments during the whole period between 2022 and
2042 in different periods of time. The plan that has been made is to settle Mr. Smith for a
comfortable retirement and a passive stream of income whilst working and after retirement.
The Smith Investment Account is advised to invest in Asset classes such as Cash, Fixed
Income, Stocks, and Real Estate. These classes are based on the Canadian environment.

Identifying the constraints: Some of the constraints that may be associated with the
following investment plan would include taxation, the timeframe of the investment period,
liquidity issues, Legal policies, and market risk.

Monitor, Analyze and Report Investment Results

Monitor Investments

Having set up the policy, the portfolio, which includes the asset mix, the next step is
to monitor if the portfolio is managing well.

The monitoring process focuses on three key areas:

1. Changes in the goals of the investor (John Smith), His preferences, or his
financial position
 2. The expectations for each individual securities and capital markets can be vital
as the investor may want specific results, but the securities can be performing
in a different manner.
3. The trends in a specific industry, or the health of the country’s/global
economy.

The needs of the client should be monitored regularly to be able to understand and
stay on top of the current situation. This is highly important as the market’s stability and the
investor’s needs can change as fast as each other. Since an NAAF (New Account Application
Form) is signed from the initial stages of allowing Turbo Advisors to take care of the
investments, this can be checked at regularly to see if the current goals of the investor are
matching with the goals noted then. This does not only settle at identifying goals, but also the
current asset holdings of the investor, his financial position, tax savings, need of cash
(liquidity), and his tolerance for risk. Any changes that are shown between the current
situation and the data from the NAAF, will be required to be updated into a new amended
NAAF (Canadian Securities Institute, 2008)

Secondly, monitoring the market and the economy is highly important too. Capital
markets move in association with new policies, inflation rates, tax rates, unemployment rates,
government announcements, demand and supply of certain products/services, and the GDP.
The main role for Turbo Advisors is to anticipate these changes soon to be able to make
amendments to the portfolio and save Mr Smith from high losses in his portfolio. These
amendments also help in scooping up great profits as it allows a perfect entry and exit
strategy for some securities within the asset mix.

Evaluate the portfolio performance

A successful portfolio is determined when the portfolio rate of return exceeds than
the rate of return of similar comparable portfolios around. Turbo Advisors would use a
benchmark to evaluate the performance of the portfolio. This benchmark can be set by seeing
results of the industry and the market and compare the portfolio to their results. The most
common benchmark used is T-bill rate (change in face value of a treasury bill).

Turbo advisors ltd can measure portfolio returns every quarter, semi-annually, or
yearly to check how the portfolio is performing. This can be done using the formula
(Canadian Securities Institute, 2008):
 Change∈market value
Total Return= × 100
Initial Value

Although the total return calculation can be important, this does not take in account
the risk associated with the investment. Taking risk into consideration allows to calculate a
risk-adjusted rate of return. A sharpe ratio calculation is best used to do this. This ratio used
to see if the returns that is being available in the investment is worth the risk. The formula for
this is (Canadian Securities Institute, 2008):

R p −Rf
S p=
σp

Where:

S p=Sharpe ratio

R p =Portfolio returns

R f =The risk −free rate ( derived mostly ¿T −bill rates )

σ p=Portfolio standard deviation

The larger the ratio, the better the performance of the portfolio. This can be
compared to the sharpe ratio of a particular benchmark too. This evaluation will provide a
better understanding of how healthy/unhealthy the portfolio is. However, this is not the only
factor that assesses how well a portfolio is doing. There are other factors too. These include
variable factors such as the investors circumstances, and changes in his goals. This would
cause the investment portfolio a difficult one to assess every now and then. It is a possible
cause of higher risk than usual.

Rebalance the portfolio

Rebalancing the portfolio would normally include all the similar processes as in the
monitoring and analyzing the portfolio. This is a procedure where all the research carried out
can be used to relocate the assets and securities into different proportions in the portfolio. For
e.g if TD Bank’s stock price has been on the low in the past 5 years, then it is advisable to
look at comparable stocks in the market and learn how they perform. The portfolio can then
be rebalanced. This process is a continuation process that behaves like a cycle. It is necessary
to use evaluations, data analysis in order to make changes to the portfolio.
 References

Canadian Securities Institute. (2008). The Canadian Securities course [2008]. Editorial: The

Institute.