You are an Investment manager for the Private Banking team of Rich & Wealthy Plc, a bank based in London. Whilst this bank is primarily a retail institution, you represent the team which deals specifically with “high net worth” clients; offering a bespoke service to clients a minimum income of £150,000pa and investment assets in excess of £250,000 market value.
This is a competitive market and the type of clients that you represent will expect the highest possible service standards and, if disappointed, will be quick to take their business elsewhere.
You have recently been introduced to Mr William Sharp, who has become dissatisfied with his current financial advisors. Mr Sharp has told you that he believes his former advisors have disregarded his wishes and have failed to achieve his aims and objectives with his current investment portfolio.
Mr Sharp has an existing portfolio of securities, but has also recently inherited a lump sum of money from his late father’s estate. He has inherited a sum of £250,000, which is currently on deposit in his bank account earning a poor return of 0.15% pa, with instant and penalty free access available. He is awaiting your professional opinion; he has asked you to review his existing investments and make recommendations regarding the performance of his portfolio, if it may be improved and how he should invest his inheritance.
During your first meeting with Mr Sharp you collected a substantial amount of personal and financial information which you hold on file; including the following key information:
Mr Sharp is 45 years old, single with no financial dependents and owns his own house in London which is mortgage free. He has no outstanding financial debt at this time.
He is employed as a lawyer in the City of London, with an annual salary of £190,000 and is fortunate to have a substantial “rainy-day” fund in savings split between four other retail banks. These funds are to remain as liquid savings and he does not require any income to be generated from his investments at this time, due to his current tax status.
His aims and objectives at this time are to achieve long-term sustainable capital growth in excess of the return on the FTSE All-Share index and his agreed investment time horizon is ten to fifteen years.
You have accurately assessed Mr Sharp’s attitude to investment risk; which is agreed to be a little more aggressive than balanced and he has confirmed that whilst he is prepared to accept some reasonable investment risk in the pursuit of long-term capital growth, he does not wish to risk major capital loss.
Mr Sharp is prepared to invest overseas if the risk is not too great; however, he is not prepared to expose himself to derivatives, structured products, commodities or other alternative investment classes which carry excessive risk.
Details of Mr Sharp’s existing investment portfolio.
Holding Description Index Market Price Value
1,300 Lloyds Bank (LLOY) FTSE100 79 1,027
700 Royal Bank of Scotland (RBS) FTSE100 214 1,498
1000 HSBC (HSBA) FTSE100 621 6,210
1,200 Barclays (BARC) FTSE100 240 2,880
500 Imperial Tobacco (IMB) FTSE100 3610 18,050
400 BAT (BATS) FTSE100 3223 12,892
1,500 Tesco (TSCO) FTSE100 320 4,800
1,200 Sainsburys (SBRY) FTSE100 350 4,200
1,050 Marks & Spencer (MKS) FTSE100 362 3,801
400 Schroders (SDR) FTSE100 3080 12,320
600 RSA Insurance (RSA) FTSE100 578 3,468
700 J P Morgan Chase (JPM) NYSE 85.50 59,850
800 Wal-Mart Stores (WMT) NYSE 73.90 59,120
1,100 Fidelity China Special Situations IT (FCSS) FTSE350 165 1,815
CNY 200,000 Commonwealth Bank of Australia
4.2% 2020 XS1706939227 16,000
£14,500 Severn Trent Utilities
6.25% 2029 XS0097777253 121 17,545
£20,000 1.3/4% Treasury Gilt 2022 102 20,400
PLUS £250,000 CASH HELD IN AN INSTANT ACCESS CURRENT ACCOUNT
a) Critically discuss the performance of the existing investment portfolio and make an assessment of its suitability to meet the client’s stated aims and objectives.
b) Make recommendations for changes to the existing portfolio in order to create a portfolio which has the potential to meet the client’s needs. Your recommendations should include the additional cash sum that Mr Sharp has inherited.
c) During your discussions, Mr Sharp has informed you that he will retire when he is around 60 years old and that he is a member of his employer’s final salary pension scheme. You are aware that when he begins preparations for retirement, his aims and objectives for his investment portfolio may change; it is very likely that he may wish to produce a blend of modest capital growth together with a sustainable income stream to augment his pension income in retirement.
If this proves to be true; what changes to Mr Sharp’s investment portfolio would be likely to be appropriate?
You are free to make any reasonable and justifiable assumptions and it is expected that your answer will address economic circumstances and inflation.