FAQ
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Below we answer some frequently asked questions. We are happy to elaborate on any answer or provide more detailed responses. Please contact us to send us an email or find our phone number.
1. HISTORY AND BACKGROUND
Bradley Nuttall Limited (Bradley Nuttall) was established in Christchurch in 1994 and is independently owned and operated. Bradley Nuttall also has offices in Dunedin, Wanaka, Nelson Auckland, Palmerston North, and Whangarei. See About Us. Bradley Nuttall is a member firm of The Asset Class Investors Group (ACIG - www.assetclassinvesting.com.au) which comprises nine firms and collectively manages in excess of $2.4 billion. The ACIG meets two times per year to share resources and debate best investment practices. We also have strong global connections. For example, in connection with ACIG during 2007 we were able to spend several weeks visiting top wealth management businesses in the U.S. Additionally, we travel to Australia three or four times per year to participate in Investment Management Workshops with a number of financial planning firms that focus on implementing best practice asset class investing. We are fortunate at these workshops to mix with like-minded businesses and to be educated by many of the world’s leading financial thinkers including several Nobel Prize winning Laureates. The benefit of this approach is that it enables us to remove ourselves from the so called education received from local financial institutions who frequently demonstrate bias in advocating certain investment solutions that favour products they have designed and/or promote. We subscribe to research house Morningstar and access research from five different sharebroking firms. As an aside it is interesting how research analysts from the different sharebrokers will have varying views – some will recommend specific buys whilst others recommend the same company be sold. We are careful not to be biased by their views. We are committed to providing quality independent advice, tailored to your requirements. We take a comprehensive wealth management approach and have a dedicated and committed support team. Our business is based on referrals from our clients and professionals such as lawyers and accountants. Lawyers, in particular, seem to appreciate our approach as our focus is on managing the downside risks as much as it is on providing a good investment return. 2. INVESTMENT PHILOSOPHY2.1 What investment philosophy will be adopted to manage our funds?We adhere to an asset class investment philosophy. This style is contrary to the traditional “active management approach” employed by brokers and most other financial planners, whereby individual securities and investment managers are selected to outperform the market. Since the early 1980’s a significant body of academic research has been compiled which consistently shows that approximately 80% of all fund managers deliver below market performance once the effect of their fees and expenses are taken into account. Furthermore, the top 20% of fund managers are not the same every year. This makes trying to pick next year’s top performers a risky strategy and in our view is likely to lead to below par returns. An asset class strategy aims to deliver the returns from each asset class with minimal costs. If executed correctly it ensures investors are appropriately rewarded for the investment risks taken. The benefits of this approach are; broad diversification – you will own approximately 8,000 different companies and assets, reduced volatility, lower risk, lower fees and enhanced returns. 2.2 What type of investments do you use to build portfolios?
Depending on our client’s risk tolerance, objectives and time frames we structure our client’s portfolios with a differing ratio of debt (cash and fixed interest) to equity (property and shares). Generally, the strategic asset allocation of a typical ‘”balanced” (45/55 debt to equity) portfolio would be as follows: To implement this strategy a mix of low cost managed funds and direct investments are used for most client portfolios. Other asset classes are continually reviewed including Global Property, Hedge Funds, Commodities and Private Equity. However, these other asset classes have thus far been rejected based on concerns over 1.) liquidity, 2.) transparency, 3.) costs and 4.) having a track record of sufficient length that we can review their performance through different business cycles and understand their behaviour.
2.3 How do you manage fixed interest in terms of credit and maximum exposures?Bradley Nuttall’s fixed interest strategy is designed to:
To help minimise risk within a portfolio it is necessary to diversify within the fixed interest strategy. Different types of fixed interest securities can be used e.g. bonds, capital notes, fixed interest trusts etc. Each type of investment has its own advantages and disadvantages and will perform differently in different market conditions.Off Shore Fixed Interest We believe it is prudent to have a portion of the portfolio held in off shore fixed interest principally due to the relative size of the New Zealand debt market and the lack of liquidity. When investing in off shore fixed interest we, at all times, use funds that are fully hedged to the New Zealand dollar to avoid unnecessary exchange rate risk. The currency hedge also typically provides income which helps to neutralise the difference between New Zealand’s relatively high short term interest rates and lower foreign interest rates. Fixed Interest Risk The returns from fixed interest are determined principally by:
Higher returns are generally associated with longer maturity and lower credit quality. General Guidelines for Investing in Fixed Interest
Please note that Bradley Nuttall does not engage in tactical asset allocation (sometimes termed “market timing”). We employ a buy and hold approach and where individual securities (investments) are selected, Bradley Nuttall will select them in an effort to track the overall return of the asset class from which they are selected. We do not expect to necessarily achieve better returns than those provided by the New Zealand debt (fixed interest) market as a whole. Additional Guidelines for Pooled Investments Where fund managers are used they must have a minimum average investment grade rating of A (Standard & Poors) and a maximum exposure to any non-government issuer of 10%. Unrated investments may be considered subject to being approved by the Trustee and Bradley Nuttall’s investment committee. Maximum exposure to any unrated investments will not exceed 10% of the fund and 3% exposure for any issuer. 2.4 What structures do you use to minimise tax?We are very mindful of keeping the “tax drag” on investments to a minimum and structure investment strategies to reduce tax liabilities. As an example, we have recently established a fixed interest Portfolio Investment Entity (PIE) for our clients to cap the tax on interest at 30%. As part of our reporting package our custodian (AEGIS) provides comprehensive tax reporting for investment portfolios. This consolidated reporting helps to simplify tax return preparation and reduce the cost of administering clients’ financial affairs. However, whilst tax efficiency is an objective, it must be balanced with the other priorities of the portfolio including diversification, liquidity, expenses and the adherence to the strategic asset allocation. 2.5 Will you tailor the portfolio to our needs?
All client portfolios are tailored specifically to their personal requirements and circumstances. The model portfolio outlined on the previous page is an example. 3. EXPENSES3.1 What fees do you charge for the ongoing management of our portfolio?Bradley Nuttall’s wealth management services are fee only. We charge clients’ a fee based on the value of Assets under Management. On a portfolio value of up $250,000 our fee is typically 1.25% p.a. This fee reduces on a sliding scale and for larger portfolios reduces to 0.60% p.a. To protect client’s assets, and to simplify administration, investment assets are held by an independent custodian owned by the ASB Bank. The fee for this service is 0.30% p.a. for a portfolio of up to $1,000,000. Again this fee reduces for larger portfolios These fees are tax deductible. 3.2 What other fees/costs will I be charged?Bradley Nuttall employs low cost, low turnover, institutional funds most of which are not available to retail investors. The weighted average fund manager fees for the total portfolio are approximately 0.37% gross p.a. 3.3 What is the total cost of delivery for managing our money?The Management Expense Ratio (MER) is the total cost of managing your portfolio. Bradley Nuttall’s maximum total fees (MER) can be summarised as follows:
Adviser Fee 1.25% Custodial Fee 0.30% Fund Manager Fees 0.37% Total Gross Fee 1.92% Please note that the fees for larger portfolios and are considerably lower than those stated above. For example a client with $1M invested will pay approximatley 1.43%. The adviser and custodial fees are deducted on a quarterly basis from your investment portfolio. The Fund Manager fees are deducted at the fund manager level and reported to us on a quarterly basis. Bradley Nuttall monitors the total true cost of delivery carefully as this ensures an enhanced net return for our clients. 3.4 Do you or your firm receive any commission, fund manager fee rebates, or any other inducements from providers?Many fixed interest providers and fund managers pay commissions to advisers upon placement of the investment and/or on an ongoing basis. Additionally sharebrokers pay commissions to advisers when shares or fixed interest investments are purchased via them. Bradley Nuttall rebates all commissions, manager fee rebates and any other financial inducements back to our clients at all times. This ensures a transparent process, client’s know exactly what fees they are being charged and ensures every recommendation we make is based on what is best for clients. 3.5 What performance based fees are received by any of the investment managers?Nil. In our view performance based management fees primarily reward the investment manager and not the client and, in fact, detract from the net performance to the client over the longer term. 4. REPORTING AND ONGOING MANAGEMENT
4.1 What analysis and reports do you provide comparing investment performance against appropriate benchmarks, peer groups and our objectives?
In addition to our regular meetings Bradley Nuttall has an annual meeting with our clients to review portfolio performance against the relevant benchmarks. The analysis summarises net returns after tax and fees compared with our peers and the market for the past one, three and five years. This objective assessment provides comfort for our clients and enables Bradley Nuttall to assess the relative performance compared with our peers. We are confident clients' investment portfolios will out-perform over the longer term due to our asset class investment philosophy, effective diversification, tax management, lower fees and lower portfolio volatility. 4.2 What control procedures do you have in place to ensure best execution?For all direct fixed interest purchases Bradley Nuttall will normally approach two sharebroking firms to ensure best pricing. We do the same for equities and set maximum and minimum pricing. Bradley Nuttall also negotiates preferred rates on fixed interest where possible based on volume. This is assisted by the fact our combined offices manage in excess of $300 million on behalf of our clients on a fee only basis. 5. DUTY OF CARE5.1 How are investment assets protected from theft and embezzlement?As mentioned in 3.1 we utilise an investment custodial system owned by the ASB Bank. All cheques and money transfers are paid to the custodian (not to Bradley Nuttall) and any withdrawals can only be made to the bank account nominated by you. The custodian also sends to you directly a Transaction Summary on a quarterly basis. This summary itemises all portfolio transactions and is sent in addition to the quarterly reports you receive from Bradley Nuttall. Furthermore, you are able to access your investment portfolio information online at any time. 5.2 Are there any potential conflicts of interest?No. Bradley Nuttall, as mentioned previously, is only paid by you, the client. This ensures our complete independence and ability to provide unbiased advice. 5.3 Are service agreements and contracts in writing?Yes. All our clients complete service agreements with both the custodian and Bradley Nuttall. These agreements specify the Custodian’s and Bradley Nuttall’s obligations and responsibilities to clients. Furthermore, we draft an Investment Policy Statement tailored to each client’s requirements which specifies how their investments are to be managed and our responsibilities. 6. What returns have your strategies delivered?
Investment theory and historical capital market return data suggest that, over long periods of time, there is a relationship between the level of investment risk assumed and the level of return that can be expected. In general, in order to attain higher returns one must accept higher risk (i.e. volatility or uncertainty of return). Click on any of the links below to be see the returns for our portfolios. BNL Investment Management Portfolio 20/80: Defensive Please note that this period includes two of the largest falls in stock markets in the last 80 years. The stock market crash of 2001/02 the bursting of the “technology bubble” and the “Global Financial Crisis”. |
