Summary - Investment Philosophies in Action 2

In today’s dynamic financial landscape, the creation and maintenance of a clear, consistent investment philosophy is a cornerstone of professional financial advice. An investment philosophy not only underpins portfolio construction and ongoing management, it also provides transparency and clarity for clients—particularly during periods of heightened market volatility. Beyond the technical facets, there is a vital ethical dimension: advisors must ensure that the portfolios they recommend truly reflect clients’ needs, values, and risk tolerances.

This article distills insights from an in-depth conversation with Michael Bova, the founder and Managing Director of Family Wealth Advisory. We explore how to design and implement an investment philosophy, drawing on Michael’s experiences transitioning from a basic index-based approach toward a more sophisticated, discretionary managed account structure. Throughout, we highlight key considerations, including client communication, regulatory compliance, team engagement, and—perhaps most importantly—professionalism and ethics in every step of the process.

The Starting Point: Strategy First

Michael Bova’s professional background spans law, business, and accounting. When he entered the financial advice profession, strategy quickly became his primary passion. He began his advisory career by focusing on strategy-heavy work with family business owners, helping them manage complex structures, optimize tax strategies, and protect assets. His team’s approach always emphasized cash-flow control: teaching clients how to divert savings toward long-term goals, thereby harnessing the power of compounding returns.

For many advisors, the “why” of an investment philosophy begins with recognizing where their strengths lie. In Michael’s case, he discovered that his highest contribution was less about picking individual stocks and more about designing robust strategic roadmaps for clients’ wealth. This underscores a core professional principle: act where you can add the most real value. Rather than competing with specialized fund managers or trying to time markets, Michael’s firm focuses on the behaviors, psychology, and planning that truly set clients on the path to financial freedom.

Ethics in Strategy

Advisors who emphasize strategy inherently adopt a client-centered worldview. By starting with clear objectives, an advisor can ensure recommendations align with each client’s life, goals, and risk tolerance. The result is not only better long-term wealth creation but also a more ethical approach: the advisor diligently works in the client’s best interest. This is in stark contrast to a model that might promote excessive transaction activity or short-term gambles that do not serve the client’s deeper priorities.

Defining the Investment Philosophy

Although Family Wealth Advisory began with a heavy reliance on broad index-based solutions—particularly through providers like Vanguard—Michael and his team recognized, over time, that clients needed a more sophisticated approach. As their firm’s assets under management grew, so did the complexity of individual portfolios. In 2019, they took a decisive step: creating their own managed account program with the support of an investment committee that includes Mercer and asset consultant Brad Matthews.

1. Core Belief in Market Efficiency… With Exceptions
   Michael’s overarching principle is that markets are mostly efficient over long stretches. That efficiency forms the basis for using core, low-cost, index-style strategies. However, he also believes that emotional triggers—“fear and greed”—can occasionally produce inefficiencies. Therefore, a portfolio should include “levers” that can be pulled when valuations become significantly distorted or when market sentiment enters extreme territory.
2. Strategic Asset Allocation (SAA) as the Anchor
   Just as an architect needs a strong foundation before worrying about the finer design details, an investment professional needs a robust and well-researched strategic asset allocation. This SAA ensures the portfolio aligns with the long-term, big-picture objectives. Whether the client is a family business owner or an accumulator still building net worth, a well-structured SAA dictates how much should be allocated to growth assets (equities, property, etc.) versus defensive holdings (bonds, cash, alternatives).
3. Active Overlay for Risk Management
   While a core index approach can provide efficient market exposure, Family Wealth Advisory overlays active management for specific scenarios—particularly where market valuations or interest rate environments are in flux. During the COVID-19 volatility in 2020, this flexibility proved critical: the firm could swiftly adjust duration in fixed income and tweak exposures in equities as market conditions shifted daily.

Together, these three pillars—market efficiency, strategic asset allocation, and a targeted active overlay—compose the essence of Family Wealth Advisory’s investment philosophy. Although it sounds straightforward conceptually, bringing this framework to life requires extensive planning, team alignment, and clear communications with clients.

The Transition Journey: From Concept to Reality

Implementing a clearly articulated investment philosophy is a complex process. Michael’s firm devoted more than 18 months to thoughtful planning before officially launching its managed account solution in 2019. Below are the major elements of that journey.

1. Licensing and Regulatory Considerations

Before they could set up a discretionary managed account structure, Family Wealth Advisory needed the flexibility to do so. At the time, the practice was an authorized representative under a larger dealer group. As the firm grew, Michael realized that building a more customized approach—especially one featuring their own, dedicated managed accounts—might not be feasible under the existing arrangement.

The solution: obtaining their own Australian Financial Services License (AFSL). This step demanded significant time and resources. The firm had to establish robust governance, demonstrate compliance with regulatory standards, and implement policies and procedures that met the stringent requirements of an AFSL. Ethically, it was a wise move. By controlling its own license, the firm gained autonomy to design portfolios that truly serve client goals, rather than being confined to a narrower Approved Product List (APL) or external rules that might not align well with client needs.

2. Selecting Partners and Platforms

After clarifying the investment philosophy, Family Wealth Advisory considered how best to execute it. Working with large index providers—like BlackRock or State Street—might simplify certain aspects of the approach but would not deliver the full customizability Michael envisioned. Instead, the firm chose to partner with Mercer (for capital market assumptions and sophisticated asset research) and an external asset consultant, Brad Matthews, to help shape the final models.

The next step was choosing a platform. Shifting all client assets to a new provider can be time-consuming and costly if managed poorly. Fortunately, their existing platform was willing to accommodate the new managed account structure and offered competitive pricing, thereby avoiding a disruptive transition. These decisions illustrate a cornerstone of professional ethics: focusing on minimizing disruptions and costs that might otherwise burden clients.

3. Managing Internal Processes and Teams

From a practice management perspective, implementing a new investment philosophy or managed account solution entails a considerable workload. Michael recalls how, during the transition, the team had to prepare new advice documents—Statements of Advice (SOAs)—for nearly every client to move them into the discretionary structure. This was not a trivial effort.

• Process Mapping: A newly appointed General Manager worked closely with the paraplanners, associates, and other team members to map out each step of the transition. By standardizing workflows, the firm reduced stress on the staff, ensured quality, and honored compliance obligations.
• Respecting Team Capacity: Even with good processes in place, the surge of SOAs meant a lot of extra hours. From an ethical leadership standpoint, Michael sought to ensure team members did not burn out. Because employee well-being ultimately affects client outcomes, this internal process management was as much about professional responsibility as it was about efficiency.

Bringing Clients on Board

The evolution in Family Wealth Advisory’s approach was more than an internal reorganization—it demanded a change management effort for clients. While some advisors might try to expedite matters with large-scale email announcements, Michael and his team took a more personal route.

1. One-on-One Conversations
   Clients were already used to a certain cadence of reviews—often every six or twelve months. The firm leveraged these sessions to explain why they were introducing a discretionary managed account. Importantly, they framed it not as a new or radical idea, but a natural evolution of the index-driven, asset allocation philosophy already in place.
2. Addressing Client Concerns
   For clients, the biggest question often was, “If this worked so well for eight or nine years, why change?” Michael emphasized that the core philosophy remained intact—this was simply a more efficient way to execute. By granting limited discretion to the investment committee, the firm could respond promptly to market events (for example, sudden interest rate movements) without waiting on new advice documents or formal sign-offs each time.
3. Ethical Dimensions of Discretion
   Entrusting discretion to an advisor or an investment committee is a major leap for many clients. They must feel fully confident that the professional is both technically capable and ethically committed to acting in their best interest. This transparency is crucial. Michael’s team took time to explain clients’ rights—namely, that they could opt out of the managed account structure or in-specie transfer their assets out at any stage. Since the structure was designed to align with client objectives (and keep costs modest), most embraced the approach.
4. Enhanced Communication
   Instead of delivering pages of dense jargon, Family Wealth Advisory now provides monthly and quarterly updates on how the investment committee sees the world and the portfolio changes (if any) taking place. This ongoing communication keeps clients informed, reduces surprises, and boosts confidence, reinforcing that professional duty of care.

Professionalism and Ethics at the Core

Throughout this implementation journey, two themes stand out: professionalism and ethics. While those words can seem abstract, they manifest in concrete ways:

1. Best Interest Duty
   Every choice, from choosing to adopt a discretionary model to selecting external partners, was filtered through the lens of “Does this truly serve the client?” This is the essence of professionalism: making decisions driven by the client’s welfare, not by convenience or short-term commercial gain. In Family Wealth Advisory’s case, partnering with Mercer and customizing an active overlay took more time and effort, but ultimately delivered the style and rigor their clients need.
2. Transparency and Consent
   The step of client consent is not merely a legal box to tick. It is a demonstration of respect for client autonomy. Family Wealth Advisory carefully explained the new structure in face-to-face meetings (or virtual ones, if needed), ensuring that no client was shuffled into the managed account without fully understanding and agreeing to it. This is an excellent example of placing ethical communication at the heart of the advisory relationship.
3. Holistic Education
   Rather than simply describing the product’s technicalities, Michael’s team continually educates clients about underlying philosophies: compound returns, volatility, and managing emotional triggers. By focusing on teaching clients about money psychology—what Michael calls their “relationship with money”—the firm empowers investors to avoid panic-driven decisions. This addresses one of the greatest ethical challenges in finance: helping clients keep perspective when markets fluctuate wildly.
4. Respect for Staff Well-Being
   In an industry where employees often work long hours to meet compliance demands and client needs, looking after staff is part of professional ethics. Overstressed employees are prone to errors and diminished morale, which can translate into poor client experiences. Family Wealth Advisory’s measured, 12- to 18-month approach to implementing the discretionary model (instead of rushing through it in mere weeks) reflected a deliberate respect for the team’s capacity.
5. Adaptive and Ongoing Governance
   Even after the managed accounts launched, the governance structure remains active. The investment committee meets monthly, keeps a record of decisions, and documents the reasoning behind any shifts in asset allocation. This ongoing process exemplifies the “duty to review”—upholding diligence by continually testing assumptions against new market realities or macroeconomic developments.

Lessons Learned and Practical Tips

For any advisory firm considering a deeper or revised investment philosophy—especially one that involves managing portfolios under discretion—Michael’s story offers key takeaways:

1. Identify Your Core Beliefs
   Clarify whether you believe markets are mostly efficient or if you see scope for active management. There is no universally “right” approach; what matters is aligning it with your team’s strengths and your client base’s needs. Once you choose, remain consistent. Constantly flipping between strategies erodes trust and can hurt returns.
2. Choose Collaborators Wisely
   If you opt to outsource certain functions (e.g., asset consulting), select partners who share your ethical standards and are technically proficient. Michael emphasizes that working with a recognized industry leader like Mercer accelerates portfolio improvements and fosters investor confidence.
3. Consider Licensing Early
   If your current licensee arrangement restricts how you can structure or brand your managed account solutions, you may need your own AFSL. Do your due diligence and plan for the governance, compliance, and resource commitments an AFSL requires.
4. Manage Internal Change Thoughtfully
   Well before launching a new structure, map out the process, from the initial statement of advice to the final client sign-off. Anticipate the bottlenecks in paraplanning, administration, and review cycles. If necessary, bring in a project manager or consultant to help process-map effectively.
5. Roll Out Gradually (If You Can)
   Instead of forcing every client into a new model in one big push, consider weaving it into regular review meetings. This approach keeps the process personal, reduces confusion, and shows respect for clients’ individual timelines.
6. Maintain a Client-Focused Mindset
   Whether it is educating clients about volatility, helping them identify hidden savings, or giving them regular updates on portfolio actions, keep your communications aligned with their best interests. This is both ethically sound and good for long-term business success, as clients who feel understood and supported are more likely to remain loyal.

Beyond Implementation: Ongoing Evolution

A sound investment philosophy is not a “set-and-forget” endeavor. Markets evolve, client priorities shift, and new financial products emerge. The role of professionalism and ethics is to ensure any evolution of the philosophy retains the client’s best interests at heart. Family Wealth Advisory’s monthly investment committee meetings, stress-testing exercises, and regular stakeholder communications ensure that the philosophy remains dynamic but never contradictory.

Michael’s firm, for example, may tweak asset allocation assumptions if there is a fundamental shift in the interest rate environment or macroeconomic conditions. However, these adjustments still reflect the same overarching framework: rely on broad market efficiency, manage strategic allocations carefully, and use active levers for risk mitigation. This consistency helps clients feel secure that the “ground rules” they signed up for remain in place.

Conclusion

Building an investment philosophy that is truly professional and ethical requires more than picking a benchmark or deciding between active and passive management. It is about structuring a set of beliefs, processes, and partnerships that consistently serve clients’ best interests while also sustaining a healthy, supportive environment for the advisory team.

Michael Bova’s journey—from an index-centric model toward a discretionary, managed account solution—demonstrates how careful planning, regulatory diligence, and transparent client communications can lead to a sustainable outcome for everyone involved. His process underscores the following truths:

• Professionalism is expressed through diligent research, robust governance, and client-centered strategies.
• Ethics demands that every decision be guided by the client’s welfare, underpinned by clear communication, and protected by transparent processes.
• Practicality should remain front and center. Even the best-designed investment strategy is fruitless if it overwhelms staff, creates unnecessary client confusion, or fails to adapt to real-world conditions.

By taking these lessons to heart—focusing on the synergy of strategy, open communication, technical expertise, and a deep sense of duty to the client—advisors can confidently construct and implement an investment philosophy that stands the test of time. And in an industry where trust and integrity are paramount, that is the hallmark of true professionalism.

Accreditation Points Allocation:

0.10 Technical Competence

0.10 Regulatory Compliance and Consumer Protection

0.10 Professionalism and Ethics

0.30 Total CPD Points