Advice Process. Tees Valley Asset Management Limited Financial Planning Service

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1 Tees Valley Asset Management Limited Financial Planning Service Tees Valley Asset Management Limited Suite 20 Durham Tees Valley Business Centre Orde Wingate Way Stockton on Tees TS19 0GD Tees Valley Asset Management Limited was formed in 2003 by Gary Blakemore and David Snowden to provide our client's with quality financial advice, along with an excellent, client focused ongoing service proposition. We advise only a select number of clients so that we can provide each and every individual client with the personal advice and service required. Tees Valley Asset Management Limited, provides financial advice to both personal and corporate clients. Collectively, Gary and David have over 50 years experience in financial services, providing financial advice on over 15 million of client s assets. We aim to build long standing relationships with our client s based on trust by offering high quality, professional advice. We believe this is best achieved face to face, either in the comfort of your own home, at your place of work, or in our local office in Stockton on Tees. Tees Valley Asset Management Limited provides a comprehensive financial planning service to a relatively small number of client families. We regard our role as helping you to deal with all aspects of personal finance and to achieve your personal goals, which may be financial or non-financial. The management of your assets is geared to achieving these goals. The service we offer is much more than just recommending where you can place any excess capital you may have available. At its core, the financial planning service we provide aims to help you develop a comprehensive investment strategy, which will assist you to maximise the benefits from your portfolio of assets. To do this we help you to be financially well organised, to invest in funds that provide the right balance between the risk you are willing to take, and the return that you require, whilst ensuring that you minimise any tax liabilities that may arise from your portfolio. Once the plan is implemented, we believe it is vital that as your circumstances change, we review the plan and update it to take account of your changed circumstances. For this reason, we include as part of our financial planning service; regular review meetings. The number and regularity can be agreed with you when the plan is first implemented. Advice Process Step 1: Initial Meeting At our first meeting, we carry out a thorough assessment of your current financial position, your goals and aspirations, and we will determine how we can add value to help you achieve your goals. We will discuss your attitude to investment risk aided by completion of a psychometric questionnaire. The initial discovery meeting is free of charge, and we will agree with you our payment for service options at this meeting. Step 2: Recommendation Meeting Following our initial discovery meeting, we will analyse the information we have gathered regarding your present financial situation and where you want to be moving forward. We will prepare a plan to discuss with you at the recommendation meeting, based on the information you have provided and in particular your attitude to investment risk. Step 3: Implementation and Review Meetings If you are happy with the plan, we will arrange to implement it or agree any amendments. We will complete the application process and we will put the plan into action. The level of service and the number of review meetings you require will be agreed. This ensures that your plans remain on track to meet your financial goals and aspirations for the future.

2 Investment Risk As part of our process, we will help you establish your attitude to risk. This is especially important if you are not confident or experienced at investing. You may have a different attitude for different types of investments. For example you might be happy to take some risk with money you won't need access to for many years; but if you are also saving up for something over just a few years, you may need to be much more cautious. You can't plan financially without understanding investment risk. Many people, when they hear about 'risk', automatically worry about the chance of not getting all their money back. This 'capital' risk is important, but it isn't the only type. Other types of risk involve uncertainty and unpredictability. When you make an investment, it can be difficult to say with any certainty what you'll get back when you finally cash it in. Share prices fluctuate, interest rates vary, and inflation is a risk too. Just concentrating on capital risk and ignoring these other risks could mean you take too cautious an approach. Understanding risk means identifying your own attitude to risk and identifying the different types of risk. Generally speaking: Introduction to our Service When constructing an investment portfolio, you need to consider the risks as well as the rewards. Many people think of saving, investing and speculating as being the same thing; they are in fact quite different. Saving is putting money into a virtually risk-free financial vehicle, where it can grow slowly and safely over time. Investing is putting money into financial vehicles with some degree of risk in the hope of seeing the money grow more significantly over time. Speculating is putting money into financial vehicles with a high degree of risk in the hope of enjoying rapid growth. It is only by having a detailed understanding of your current financial position and future financial objectives that we can ensure any recommendations made are suitable, with consideration given to your capacity for some capital loss. We believe combining financial planning with investment advice is far superior to a purely investment driven approach. Without establishing goals and objectives before providing investment advice, it is simply not possible to ensure that investment advice is suitable. The greater return you want, the more risk you'll usually have to accept. The higher return you want from your investments, the greater the chance of losing some or all of your initial investment (your capital). The longer you can wait before you need to cash in your investments, the more risk you can afford to take. What you are investing for and when you'll need access to your money will have a big impact on what types of investments are right for you. Investing in share-based assets has proved to be the best way for providing growth that outstrips inflation. There is a risk attached, but when you invest over the long-term, there is more time to recover your losses after a fall in the stock-market.

3 Types of Investment Risk In simple terms the main risks all savers and investors face are: Capital risk: Shortfall risk: Interest rate risk: Inflation risk: Income risk: The risk that the value of the money you have invested will fall, instead of rise. The risk that your investment won t perform well enough to meet a particular target (e.g. to pay for school fees or repay a mortgage). The risk that you commit to a product paying a fixed return over a fixed period, and interest rates move against you during that period. The risk that the growth you achieve on the money you invest will be outweighed by inflation, so its purchasing power will diminish over time. The risk that your investment won't perform well enough to generate the income you need, or that the amount of income you take exceeds the growth generated by the money you invested, so your capital shrinks over time. Share-based risks are a bit more complex: Specific risk: Market risk: This is the risk that the company (shares) you've invested in, performs badly or goes out of business. This is the risk of a fall in a particular country's stock-market where your money is invested. Currency risk: Manager risk: If your money is invested in stock markets outside the UK, then you will face currency risk. Wherever your money is invested, it will have to be converted into sterling when you want it back. As a result, movements in the exchange rate will affect the value of your investment. This is the risk of picking a poor individual manager of unit and investment trusts. Managing Investment Risk To help manage the risk your investments are exposed to, a number of risk management strategies are used. Two of the most prominent include diversifying across asset classes, known as asset allocation, and adjusting portfolios, known as rebalancing. Asset Allocation: Asset allocation is the process of dividing your investments among the various types of asset classes. The primary asset classes are equities, bonds, property and cash. There are also a range of other asset classes that may be suitable such as commodities. There is a whole host of academic research suggesting that the correct asset allocation strategy is the key to successful long-term investment performance. Research by Brinson, Singer and Beebower 1, using data covering the 10-year period from 1977 onwards, showed that 91.5% of the investment portfolio s performance over time was attributable to asset allocation. Selecting the right asset classes; the appropriate proportion, or weighting, invested in the different asset classes depends on a number of factors. These include your investment objectives, time frame and attitude towards risk. Understanding your position with regard to these factors is of the utmost importance and will form the cornerstone of your investment portfolio. Rebalancing: Rebalancing is the periodic adjustment of your portfolio to restore the original asset allocation mix. Market fluctuations can affect your mix of assets and change the risk/return profile of your portfolio. Sometimes referred to as rebalancing ; adjusting your portfolio back in line with your investment objective helps to ensure that your portfolio does not become overly invested in a particular type of investment, and thus change its risk profile so that it is out of line with yours. Rebalancing is one of the key factors in successful long-term investment performance, possibly almost as important as asset allocation itself. Your asset allocation, which is set at the outset to reflect your attitude to risk and your desired outcomes, will almost certainly become distorted and you could find yourself taking either too much or too little risk, without rebalancing. 1 Brinson, GP, Singer, BD, & Beebower, GL, Determinants of Portfolio Performance, An Update, Financial Analysts Journal, May-June 1991

4 Investment Process Our investment process is a sophisticated extension of the old adage don t put all your eggs in one basket, which inevitably prompts the question; which baskets should I put them in, and how many in each? Before we decide this; it is vital that we determine with you how much risk you are prepared to accept since this will ultimately determine what rate of return you can reasonably expect from your investments. We can then compare this against the rate of return required to meet your objective. What you need, expect and are comfortable with are not always the same. We therefore aim to help you to analyse and solve these differentials. In order to provide the best possible independent investment research, we use the services of a number of independent research and investment management professionals. Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. They provide an extensive line of products and services for financial advisers and asset managers. Morningstar provides data on approximately 456,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 12 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and treasury markets. Ibbotson Associates We offer a highly sophisticated method of risk profiling, using a world renowned system offered by Morningstar. The results of this questionnaire enable Ibbotson; the actuaries that we have outsourced all asset allocation decisions to, to recommend an asset allocation that will provide you with the correct balance of risk and potential returns. Ibbotson Associates are the leading independent asset allocation provider. Formed in the early 1970s, Roger G. Ibbotson, Ph.D., along with Rex Sinquefield researched and assembled the annual returns for several asset classes dating back to This seminal research allowed for the analysis of risk and return characteristics of different asset classes and served as a foundation for modern asset allocation. In 2006, Ibbotson became a Morningstar company. As an independent company, Ibbotson applies cutting edge academic research and proprietary methodology to create real-world, unbiased, customised solutions to help our clients meet their specific goals. Old Broad Street Research (OBSR) In order to help us to choose the correct combination of funds to match the asset allocation models of Ibbotson Associates, we have engaged the services of Independent fund research consultants; Old Broad Street Research Limited. Old Broad Street Research Limited is recognised as the leading qualitative investment research company in the UK retail funds market. They specialise in dedicated consultancy, researching and analysing investment funds and product wrappers. Their research is highly respected and OBSR fund ratings are widely acknowledged as an independent mark of quality. OBSR use an investment research approach that has been in place since 1994, and is founded upon forwardlooking, rather than backward-looking research. This leads to a strong emphasis on the qualitative aspects of research. Whilst their conclusions are informed by detailed statistical analysis, they are aware of past results rather than being driven by them. They believe that it is critical to gain a full understanding of a fund and its objectives and see their pursuit of this as one of their key strengths. Their rigorous analysis through direct and regular contact with fund management groups and fund managers enables them to understand differing investment approaches and objectives, ensuring that they are in a position to make fair comparisons between funds they consider to be similar. Critically, they also believe that risk and reward need to be assessed together and gauge superior returns in the context of the amount of risk taken. OBSR s qualitative, research-intensive approach is important to the way in which they consider funds in the context of enabling portfolios to be built. They prefer to combine funds on the basis of their current knowledge of the managers, investment house, investment objectives, philosophy and process, rather than basing conclusions on backward looking statistical analysis.

5 Discretionary Fund Management Overlay By using the combined strengths of Ibbotson & OBSR through our model portfolios, we manage your investments under what is known as Advisory Management. This means that each time a fund or asset allocation change is recommended to your model portfolio, we need to obtain your written consent to make those changes in accordance with the rules of our regulator, the Financial Conduct Authority (FCA). Model portfolios like those based on the OBSR fund selection are an effective investment approach and work reliably, however, investors still face some restrictions with these model portfolios. As markets evolve over time, this can bring changes to portfolios, which must be agreed by clients. Signing these off, especially when they appear minor, may not be the first priority for busy clients. This can result in the portfolio risk profile changing significantly over time. A fixed period rebalancing approach has historically been a relatively effective way of maintaining a risk profile, however, it can lack timeliness in fast moving markets. Strategic asset allocations are suitable over the long-term. However, in the short-term they can involuntarily expose you to temporarily overvalued asset classes. Tatton Investment Management Tatton Investment Management ( Tatton ), is a boutique discretionary fund management house (DFM), which works exclusively with financial advisers and their clients. Tatton works alongside us to ensure that our clients with platform or wrap based investment portfolios can utilise the more effective and timely management of a discretionary overlay, to overcome the few remaining shortcomings of the basic advisory model portfolio service (as described above). Tatton Investment Management steps in where existing model portfolio based investment services experience limitations. This is particularly in the areas of timely portfolio rebalancing and the short term management of long term strategic asset allocation weightings. To achieve this, Tatton apply an active overlay around your existing model portfolio by managing the strategic asset allocations on a day to day basis, to help protect your money by avoiding temporarily overvalued or overbought investments. The Tatton discretionary overlay allows the team to react faster to the appearance of new threats and new opportunities when compared to an advisory service model. However, the core of your investment portfolio will be anchored around your chosen asset allocation as determined by Ibbotson and OBSR s fund selection. Tatton can be more nimble and agile when making necessary portfolio changes, whilst ensuring that your investments always remain suitable for the level of risk that you are comfortable with. They also recognise that their service has to provide good value for money, which is why they are amongst the most competitive in the marketplace by working alongside financial advisers who remain the primary client contact. Tatton s investment philosophy is that of portfolio guardians, with its investment managers focusing on protecting value through the avoidance of overvalued asset classes rather than return maximisation as practised by traditional asset managers. They are not trying to second guess the market by identifying the next big thing, they simply act in a sensible and responsible way with the aim of keeping your portfolio on target towards your chosen risk-return objective. You will also receive regular and clear reporting on your portfolio and Tatton s views on the World s economies and investment opportunities. Tatton DFM Overlay You Financial Goals Adviser Financial Plan Platform Financial Control Asset allocation Ibbotson asset weights can be temporarily altered to avoid overvalued asset classes. Fund selection OBSR model portfolios. Selection override if necessary and appropriate. Rebalancing When necessary, not just automatically. No separate client authorisation required. Meeting your investment goals.

6 Wraps Rather than selecting several individual companies to invest with, we use a wrap, from which it is possible to build a portfolio of funds with many specialist investment companies. Put simply, a wrap account is a relatively new concept in portfolio administration designed to assist you with arranging transactions, reporting and administering an investment portfolio. A wrap account can bring together all of your investments; including shares, bonds, cash, investment trusts, unit trusts and pensions, all under one roof. They can also bring together the various tax wrappers such as ISA s, pensions, onshore and offshore investment bonds, making completing your tax return a much easier task. You no longer need to deal with several different companies to achieve specific objectives in your overall financial planning strategy, nor do you have to receive masses of paperwork from each of them, or find yourself wondering how your portfolio has been performing. There are many advantages for you as an investor when using wrap accounts such as: Ease of transactions: Reduced administration: Control: Enhanced choice: Access: One point of entry to access your portfolio and arrange transactions. Consolidated income and capital gains tax statements from one source simplifies tax-year end reporting for tax return purposes. As your adviser we will be able to report, arrange transactions and monitor your portfolio from one centralised online platform. Provided the required investment (or security) is tradable, it can be accessed through the wrap provider, giving you access to a much wider range of funds than if you were to invest directly. You will be able to access your portfolio via our website, or by telephone to get up to date valuations. Transactions such as withdrawing income from your various investments and tax wrappers can be carried out in an efficient and simple way. Cost and economies of scale: The avoidance of marketing and sales costs for the fund management groups and the purchasing power of the wrap provider equates to discounts on initial and annual management charges of individual funds. Model Portfolios We have combined the strengths of Ibbotson, Old Broad Street Research Limited and Tatton Investment Management Limited through a range of model portfolios, these portfolios are designed to suit differing risk appetites, they are known as: OBSR Income Portfolio or Tatton Managed (OBSR) Income Portfolio OBSR Cautious Portfolio or Tatton Managed (OBSR) Cautious Portfolio OBSR Balanced Portfolio or Tatton Managed (OBSR) Balanced Portfolio OBSR Active Portfolio or Tatton Managed (OBSR) Active Portfolio OBSR Aggressive Portfolio or Tatton Managed (OBSR) Aggressive Portfolio The asset allocation for these model portfolios is sourced from Ibbotson with OBSR being responsible for the fund selection to make up the model portfolios. If a Tatton managed portfolio is selected they will then apply an active overlay around the model portfolio by managing the strategic asset allocations on a day to day basis. Whilst the OBSR model portfolios are continuously monitored, a formal quarterly review takes place following which; updated portfolios are sent to us. Quarterly reports are then provided to you which give information and commentary on the performances of the model portfolios and the underlying funds used, as well as an overview of the economic and market backdrop. Any suggested changes are also explained in these documents. Following your agreement, we will automatically make any recommended changes at no extra cost. Should you select the Tatton service, any changes will be done automatically, without requiring your explicit agreement for each change.

7 Your Risk Profile 1 Cautious (low risk) This portfolio is likely to be suitable for the following type of investor: A cautious investor seeking to protect their wealth by investing in a wide range of asset types. This is to try to maintain the value of their assets when adjusted for inflation or to receive a higher income than traditional cash deposits. An investor more interested in avoiding losing money than in maximising potential investment gains. Someone who is prepared to tolerate small fluctuations in the value of the portfolio in order to achieve greater investment returns than a bank or building society deposit. The Model Portfolios Portfolio Name Income Portfolio Description The primary objective of this portfolio is to produce a higher level of income than the Bank of England base rate over the longer term. This can be achieved through investing in a range of relatively defensive diversified UK and international investments. Equity exposure is likely to range from 0% to 35% and is likely to be limited to funds that invest in shares that pay higher than average dividends. These investments do not include the same security of capital which is afforded with a deposit account. The value of your investments and the income from them can fluctuate and it is possible that investors may not get back the amount they invested. 2 Moderately Cautious (low to medium Risk) 3 Moderate (medium risk) 4 Moderately Adventurous (medium to high risk) 5 Adventurous (high risk) A conservative investor seeking to maintain capital over the medium to long-term. An investor who is prepared to accept a lower investment return than equity markets over the longer-term in exchange for trying to minimise potential losses. Someone who accepts that the portfolio will be subject to fluctuations in value. An investor who is comfortable with holding a significant proportion of their portfolio in higher risk investments in order to have the opportunity for a greater investment return. An investor who is prepared to accept investment losses in the short-term in order to achieve potentially greater investment returns over the longer-term. The portfolio will be subject to fluctuations in value. An investor who is comfortable with holding a significant proportion of their portfolio in higher risk investments in order to have the opportunity for a greater investment return. An investor who is prepared to accept investment losses in the short-term in order to achieve potentially greater investment returns over the longer-term. The portfolio will be subject to significant fluctuations in value. An investor who aims to produce significant long-term investment gains and is not concerned if the portfolio sustains regular large fluctuations (including large losses) in value. Cautious Balanced Active Aggressive The primary objective of this portfolio is to produce a combination of income and growth. The portfolio gives limited exposure to capital markets through a range of diversified UK and international investments and aims to achieve above inflation investment returns over the longer term. Equity exposure is likely to range from 30% to 50% The value of your investments and the income from them can fluctuate and it is possible that investors may not get back the amount they invested. The primary objective of this portfolio is to generate both income and growth over the longer term, giving significant exposure to capital markets through a range of diversified UK and international investments. Equity exposure is likely to range from 45% to 65%. The value of your investments and the income from them can fluctuate and it is possible that investors may not get back the amount they invested. The primary objective of this portfolio is to generate growth over the longer term. The portfolio will give significant exposure to capital markets through a range of diversified UK and international investments. Equity exposure is likely to range from 60% to 80%. The value of your investments and the income from them can fluctuate and it is possible that investors may not get back the amount they invested. The primary objective of this portfolio is to generate growth primarily from equity markets over the longer term. The portfolio will give significant exposure to capital markets through a range of diversified UK and international investments. Equity exposure is likely to range from 75% to 95%. The majority of the portfolio will be invested in risky investments offering the potential of both large gains and losses. The value of your investments and the income from them can fluctuate and it is possible that investors may not get back the amount they invested.

8 The Costs involved The costs for those who invest via the Tees Valley Asset Management Limited investment proposition are typically no more than those that would be involved should they invest in an average unit trust fund, without any of the benefits outlined. Initial Costs: The typical initial costs of any advice that we provide is usually 2% of the amount to be invested. Annual Costs: There are three annual costs involved in the Tees Valley Asset Management Limited investment proposition, these are: * The wrap charge of 0.5% p.a * Tees Valley Asset Management Limited annual advice fee of 0.85% p.a * Aggregated discounted annual fees from the underlying funds, typically 0.65% p.a on average. Should you wish to proceed with our advice, full details of costs will be provided prior to us taking it forward for you. Our annual advice fee will usually include the following services: An annual review meeting with your adviser including telephone and access to your adviser as and when required: Investment portfolio construction service: Portfolio management service: Pension planning service: Taxation planning service: A complete review of your financial strategy. A full financial health check. Using scientific risk-profiling methodology to assess your risk profile. Design a suitable asset allocation to match your risk profile. Portfolio design and construction to match your risk profile. Online access to portfolio valuations. Portfolio monitoring. Rebalancing of asset allocation to match your risk profile. Written portfolio valuations on request. Reviewing plans set up for your retirement. Pension consolidation. Advising on and arranging your options at retirement. Design your pension and investment portfolios to make use of available tax-free allowances, limits and wrappers. Work in conjunction with your accountant and other taxation advisers as required. Personal Advice Please note that this information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances. If you are in any doubt as to whether this investment proposition would be suitable for you, then you should discuss the matter with ourselves first. Investments or investment services referred to may not be suitable for all recipients. Any information given in this guide relating to income tax legislation, is based on our understanding of legislation and practice at the time of publication. Whilst we believe our interpretation of current law and practice to be correct in these areas, we cannot be responsible for the effects of any future legislation or any change in interpretation or treatment. Investors should remember that the value of investments and any income from them can go down as well as up, and that past performance is not a guarantee of future returns. You may not recover what you invest. Tees Valley Asset Management Limited is registered in England No Registered Office: Suite 20, Durham Tees Valley Business Centre, Orde Wingate Way, Stockton on Tees, TS19 0GD. Authorised and Regulated by the Financial Conduct Authority Copyright Tees Valley Asset Management Limited. All Rights Reserved