Portfolio Management Process According to CFA Institute

Firstly, it is important to attribute that the knowledge is obtained from CFA material on portfolio management. I am not sure if you noticed 2 iterative flows within the process loop. One iteration involves the client, to employ RRTTLLU and the other involves the dynamic market universe requiring RDMILT to set proper return expectations. Actually the advisory process will blend the 2 iterations.

Both loops are quite dynamic in nature. The market state changes frequently which alters the investment view and may require adjustments to the portfolio. Personal life stage changes also affect their financial plans through a change in priorities.

Forward statistics are not stable.

This is an absolute horror for financial modelling. Recalibration and optimisation of the correlation coefficients periodically proves model stability needs to be questioned whenever deviation from expected outcomes have exceeded certain thresholds beyond comfort.

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To make things complicatedly simple, there are a variety of ways to examine the situation before distilling what is relevant to decision making in today’s world of information overload. Emotional considerations may render a less rational approach taken towards an issue, which has its validity in its own way.

If it is not an exact science, it is a craft. Only guidelines apply but not hard coded rules. Compliance can only tell you what is wrong, but cannot diagnostically pinpoint the right thing to do in a situation. There is right, wrong, not right, not wrong. Each is distinctively different. Compliance to the letter of a law does not mean compliance to the spirit of the law. That is another simple truth.

For example, using term insurance for child tertiary education funding is clearly wrong and will get flagged up by compliance. But a whole life policy may be proposed for the same purpose so long as a reasonable basis (that is all the law requires) can be shown. You are entitled to your thoughts and opinions on the appropriateness of the proposal.

If you would like a design driven approach that combines both quantitative and qualitative considerations, experience the craft for yourself with an appointment with me.

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