Investment could be defined as the seeking of long term growth, in both income and capital, with an emphasis on security of capital.

Risk and reward are intimately linked and the challenge facing the manager of a private client portfolio is to maximise return within the client's accepted risk profile.The quality of investment advice, and the performance of the portfolio, has to be proportional to the quality of instruction received.

It is only through discussion and the application of experience that a strategy can be formulated appropriate to the individual investor.

Although most investors have one of three primary investment objectives - they either require an immediate income, they wish their capital to appreciate in value over the term of the investment, or they wish to achieve a balance between income and capital growth - we need to recognise that individual circumstances differ and, whilst some of these differences may be apparent , others are more subtle.To measure performance an appropriate benchmark must be established.

To do this it is necessary to be aware from the outset of the most important characteristics of the client, such as tax status, liquidity needs, time horizon and risk tolerance.

We will also need to determine liabilities, preferences and what other assets are held, as each of these factors will be a determinant in the management, and subsequent performance, of the portfolio.Attention to the detail of clearly defined objectives should achieve enhanced performance over any reasonable period of time and it is the identification of these objectives that should lay the foundation for performance measurement.

It is essential, during this consultative process, to determine any restrictions that the client may wish to impose on portfolio management and isolate the performance of the portfolio from these restrictions.Investors have differing needs, or expectations, from their portfolio.

It therefore follows that a basis for performance measurement appropriate to the investment objectives of the client should be developed, rather than attempting to measure all portfolios against one common standard.Performance measurement should be least ambiguous with the income investor.

Investors with this primary objective generally require income from their portfolio to augment other income, ie pension income, and their primary concern will generally be to ensure that this income will maintain its value in 'real' terms.

Once the 'target' level of income has been agreed, the benchmark has been established.

Thereafter it is a simple matter to index this income on an annual basis.A building society or bank deposit account will provide the underlying capital guarantee (within the limitations of the respective investor compensation schemes) that investors value.

Investments of this nature will, however, not provide the certainty of income that is required to meet the primary objective - an income stream that will retain purchasing power parity.

Income will be determined by influences outside the investor's control.An increasing level of income from the investment portfolio will inevitably be reflected in the capital performance, although these two separate elements may not necessarily move in tandem.

The client should be aware of the possibility of this divergence as, without this awareness, attention may be focused on the wrong area.

It is simply a case of prioritising objectives.

If income is the priority this should be the attention of the primary focus; the capital performance is of secondary concern.

When interest rates fell recently and investors, dependent on income, attempted to bridge the income gap, it was income, not capital performance, that led this march.

The primary concern was to maintain a certain level of net disposable income.With gilts there is security of capital and a fixed level of income.

The underlying price of the security will reflect the market's view on interest rates although inflation and a certain price volatility may be experienced.

Index linked gilts have similar characteristics.

Although they offer income and capital performance linked to the RPI, the underlying price of the security is driven by market sentiment.

Clients should not become unduly concerned with any price volatility in view of the inherent guarantees that these securities offer, and the same approach should be adopted with the income portfolio.

Although with equities there is not the same intrinsic guarantee, the manager is, essentially, being retained to steer the client clear of any torpedoes.With growth portfolios the performance yardstick will be determined by the client's attitude to capital gains tax (CGT).

CGT is an emotive issue and one that can inhibit performance.

If management of the portfolio is to be constrained by CGT considerations, the implications of this restriction must be fully discussed and reflected in the agreed benchmark.There always comes a time when the correct strategy must be to say adieu to a growth stock.

The company has performed well and the reasons for purchase no longer apply.

But the CGT liability is only crystallised when the stock is sold.

This accrued liability is, in effect, an interest free loan that has enhanced the overall return.

The greater the gain, the greater the liability.However, the government only has a minority interest, to a maximum of 40% at current tax rates.

Some 60% of a large profit will generally represent more than 100% of a small gain.

Preservation of capital is an important consideration for private clients and no investor has ever lost capital as a result of crystallising a CGT liability.Consider the Glaxo story.

A ticket to extraordinary profit for those investors with the foresight to invest - even late entrants could benefit.

At the start of 1990 new shareholders could have purchased 1000 shares for about £4000.

Two years later the holding would have been worth more than £9000, a handsome gain, although still only a 'paper profit'.

It is only when a gain is crystallised that it becomes a reality.

A sale at that time would have, in all probability, generated a liability to CGT, but the net sale proceeds could then have been reinvested from a neutral base.The 'tax averse' investor who 'held' would now find that the value of the holding would be worth about £6300.

Still showing a 'paper profit' on acquisition costs and, perhaps, a potential liability to CGT, but with a capital dominant portfolio it is hard to argue that investment performance has been optimised.

Hindsight is 20/20 vision but, if the tax question is allowed to dominate, the tail could end up wagging the dog.This begs the question - what is the value of an investment portfolio? Is it the market value as portrayed through the valuation report, or is it the 'pound note' value? If income is not a consideration, then it is surely the realisable value that is the primary concern.

With growth stocks, fundamentals will always catch up with the price.Perhaps the most challenging benchmark to establish is where a balanced return between income and growth is required.

The income requirement has to be balanced with the prospect of capital gain; the effect is of trying to serve two masters.

With the income portfolio there is a clear objective - to focus on the underlying income, although the crystallisation of any CGT liability will, of course, have an immediate impact in this area.With the growth model, attention can be directed to the growth potential of the portfolio without concern for the underlying income.

When striving to achieve this delicate balance between income and capital growth there is a need to have clarity of vision, as well as to prioritise objectives.

Is the emphasis to be put on income or capital growth? Without this clarity, the establishment of any meaningful performance benchmark standard is an extremely difficult exercise.Irrespective of the primary investment objective, private investors generally prefer an average, reliable and consistent performance where risks are controlled to an approach where performance alternates bet ween extremes.

The key to success lies in two areas: the establishment of clearly defined objectives and communication with the client.

The former is crucial as it provides the foundation for the latter, and it is essential that everyone is working towards the same objectives.

All reports and correspondence should be client specific.

Recommendations should be clear and easily understood.

The advent of word processing power has created an environment where letters or reviews can be produced with ease.

The potential problem with this approach is the inherent danger of trying to fit the client into one of the pre-cast moulds inbuilt into software systems.When determining the service quality it is important not to lose sight of the fact that price is the mechanism which connects supply and demand.

There is a direct correlation between the clients' perceptions of value and the quality of service they receive.

Clients who subscribe to an investment management service expect to travel 'first class', with all the attendant benefits.

The success of any investment decision may be influenced by events outside your control, but the definition of service objectives and the achievement of these standards is not dependent on factors outside your control.

Clients may forgive a poor investment decision, but they have no reason to forgive poor service.Whilst it is important to ensure that clients do not have an unrealistic expectation of profit from the securities market, it is essential, if aiming to 'add value' to the service on a continuing basis, that we are aware of this perception.

In the words of Irving Berlin: 'The toughest thing about success is that you've got to keep on being a success.'