Monitoring

When a prospective client chooses to implement the recommended investment plan and becomes a client, the monitoring process begins immediately. Basically, monitoring falls into three broad categories:

1. the risk/reward characteristics of the underlying investment holdings;
2. compliance with the asset allocation model, and;
3. periodic reassessment of the client's goals, timeline and risk objectives.

In terms of the risk/reward characteristics of the underlying investment holdings, the investment professional continually reassesses the relative attractiveness, on a risk-adjusted basis, of the client's various stock holdings. As noted in the discussion of the Asset Management process, the firm’s quantitative investment analysis disciplines are the primarily tools utilized in this ongoing analysis. In addition, Early McClintic & McMillan's partners meet on a regular basis to discuss recommended holdings and adjustments driven by actual performance. 

As previously discussed however, we purchase investment holdings for our clients with a focus on long-term performance and, consequently, if uncertainty exists, tends to err on the side of maintaining a position for too long as opposed to not long enough. 

With regard to fixed income holdings, because, in most cases, the investment professional purchases high credit quality (investment grade) securities on behalf of clients, again with a buy and hold philosophy, he/she primarily monitors credit ratings, typically replacing fixed income holdings only in the event of an actual or anticipated downgrade.

From a perspective of monitoring compliance with the asset allocation model, this analysis, except in periods of extreme market volatility (up or down), occurs on a quarterly basis. Because the asset allocation process is a long-term investment strategy, it is the systematic monitoring of this important component that drives risk-adjusted performance, not day-to-day review. If, on the basis of this quarterly analysis, a broad asset category is more than 2.5% out of balance with the target allocation, the investment professional will typically make buy and sell recommendations to allow the client to rebalance back to their asset allocation model.

Finally, in terms of periodically reassessing the client's goals, timeline and risk objectives, although this can, and most certainly does, occur in the course of ongoing conversations, the key component of monitoring these important aspects of the client relationship takes place in the course of annual review meetings. Goals, timelines and risk objectives can change. If so, these changes can also necessitate a change in the client's asset allocation model to ensure an appropriate investment plan.

Assessment | Allocation | Asset Management | Monitoring