Monitoring, review and client communication
When to review
Agree a review cycle in the engagement, commonly annual, and add event-driven reviews: redundancy, inheritance, divorce, illness, a new mortgage, retirement, or a change in the fund's manager, fees or PDS. Material changes to the advice relationship should be communicated promptly rather than held over to the next scheduled meeting.
What a review covers
Performance against the agreed benchmark and the client's goals rather than peer rankings alone, drift from the target allocation, fees actually paid against fees disclosed, changes to the product or provider, and whether the client's circumstances or risk profile have moved. Then rebalance, adjust contributions or recommend a change, and document the reasoning.
Worked example
A client's fund returns 6.0% against an 8.0% benchmark for two years. The adviser checks the fund's style (value, which has lagged), confirms fees are unchanged, looks for manager departures and style drift, and compares with the category median. Conclusion: the fund is behaving as designed, so no switch. The analysis is recorded and discussed with the client. Without it, a switch would be performance chasing and would generate unnecessary transaction costs.
Traps
- Reviewing only when the client makes contact.
- Switching on one or two years of relative underperformance.
- Never revisiting fees after the initial disclosure.
- Reviewing the portfolio but not the client's goals, insurance or KiwiSaver eligibility.
- Failing to record the review and a decision to take no action.