Phasing investments

We all know the benefits of this, but how do people actually put this together in their advice.

My preferred option is an automated one - £x per month for X months, though I have seen some advisers trying to do it on an ad hoc basis.

I know there is no right or wrong answer, but thoughts on minimum terms?



  • benjaminfabibenjaminfabi Moderator
    edited January 24

    Hi Tony

    First off, I would advise against phasing. You're basically just trying to time the market, with all the unknowns of it. The only reason I'd expect to see used to justify it in the first place is in response to a client concern/desire that the adviser had documented and couldn't overcome.

    Once you've decided to phase an investment, in my opinion you've crossed the line and it doesn't really matter how you do it, you are statistically likely to underperform a single lump sum on day one:

    Also, consider where the money is going. If you're investing into a risk managed fund or DFM model portfolio, is the manager making tactical allocation decisions that remove the need to phase (because perhaps they currently have 15% in cash waiting for 'opportunities' lol). That is the 'skill' of the manager that is being purchased, so it isn't a policy that can be adopted across the board even if you choose to do it.

    As I said, if you are going to do it, you're likely to be onto a loser and therefore I would clearly state it as a disadvantage in the report based on the historic research available.

    As a psychological factor within a well documented risk profile discussion with the client, it can be an appropriate strategy. And on that basis, it's really about agreeing the strategy with the client and what feels right to them as they should be driving the need to do it in the first place.

    If after this the firm is going to use phasing as a recommended strategy, then I'd completely rule out an ad-hoc approach. If you're running your own portfolios it should be dealt with a investment committee level and form part of the published CIP. I'd want to use short periods of less than 6 months and equal investments , automated as you say (possibly half up front and the remainder over six equal also works). If a client wishes to deviate that should be by exception (possibly with IC sign off) and adviser led bespoking should be ruled out completely.

    I hope that helps

    Benjamin Fabi FPFS
    Chartered Financial Planner 
  • Agree with Ben on this, especially if your dripping them into a 'CIP' on an advised basis.

    If you are on an advised basis surely you would to have some form research or background to say why you have chosen 6 months or 7 months or why not 5?

    Not only that, but the research Ben has attached is based on this uninvested cash being in a 'cash instrument' i.e still earning a return (albeit very small)

    Whereas with the phased approach usually that cash is sat in a platform cash account earning a negative return after platform fees and adviser charges, so the position is even worse when delaying a lump sum investment.

  • Thanks for the comments - I think I need to push this back a little harder at the advisers.

  • I'd forgotten about that bit of Vanguard research. They really have done some useful work haven't they.

    I'm writing a report at the moment where the adviser wants to phase the investment. I would prefer not to for all the reasons outlined above. Now all I need to do is to get him to read the Vanguard paper!

  • Hi Tony, there are some great contributions above, but if you don't win this argument with the adviser you at least want the phasing to be preset unless you have discretionary permissions.

    You know your adviser and what they're likely to engage with. This is an option for you, I love Tim Harford
  • benjaminfabibenjaminfabi Moderator
    edited February 20
    This was posted yesterday and I thought it would be a useful addition to the thread.

    Also this research from UBS.
    Benjamin Fabi FPFS
    Chartered Financial Planner 
  • Very useful. As ever, thank you @benjaminfabi

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