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Adviser  >  News  >  September 2008  >  Why is asset allocation vital?

Why is asset allocation vital?

Asset allocation is the process of selecting the proportions and investment types, markets and sectors for an investor.

Why is it so important?

Deciding an asset allocation for your clients is one of the most important decisions you will make for them. Get it right and you could keep risk to a minimum and maximise potential returns. Get it wrong and history suggests you could have a significant negative impact on returns.

An asset allocation should not remain static. As a client nears retirement it makes sense to move the focus of the asset allocation to more conservative investments, like corporate bonds and cash, to move the focus from capital growth to asset preservation. But choosing the right asset allocation and maintaining it takes a lot of your time and resource.

It’s a complex area to work out what the best blend of assets should be for each client. The reality is that no single asset class or geographical area is consistently the best, year in, year out, as the following graph shows.

Annual returns over the last ten years

Source : Lipper, September 2008. Figures based on one year returns to end December.

Asset Allocation and TCF – how we can help

Treating Customers Fairly (TCF) means you are required to provide suitable advice that takes account of client circumstances, at no extra cost to you or your clients.

Our governance promise means that all of the investment options in our Governed range have a formal review process to ensure they continue to provide a suitable asset allocation depending on your client’s attitude to risk and time to retirement.

How this benefits you

• It means the portfolio that you identified as giving the best potential returns for the amount of risk taken is maintained.
• It reduces the need for you to constantly monitor your clients’ investment and you don’t need to get subsequent approval from your client each time updates are made.
• It provides help in meeting your TCF requirements as the asset allocation remains matched to your client’s risk attitude as time passes.

Find out more

For further information about how our investment solutions can help:

• Please contact your usual Scottish Life representative or
• Visit our investment section.

Investment returns may fluctuate and are not guaranteed. The price of units can go down as well as up.