A new online tool promises to help you do just that, but can it deliver?
Wouldn't it be great if you could find a tool that helped you differentiate your practice, convert more prospects to clients, retain those clients and construct better investment portfolios for clients with less effort? For some readers, the Skill Weighted Portfolio platform may represent just such a tool.
Broadly speaking, the platform marries a sales/client education process with a portfolio construction/portfolio management process. But such a general description does not begin to do justice to the platform, so let's discuss some details.
The developers of this platform, like many other observers of our industry, have concluded that the days of the traditional product-driven, bundled-fee financial service model are numbered. In the future they see, among other things: a more client-centric, advice-driven financial services model; less reliance upon active investment management and traditional portfolio construction techniques; a sustainable trend toward the use of alternative investments; increased transparency for all investment-related expenses; and a greater sensitivity on the part of clients to those fees. Their vision of the future permeates each aspect of the platform.
The Skill Weighted Portfolio platform is designed to educate prospects and convert them into clients fast, ideally by the end of the second meeting. As the process is laid out, the first meeting is designed to interest the client in the concept of the Skill Weighted Portfolio and then educate the client as to the rationale for this recommended approach. Although the developers of the program take issue with my characterization of the investment process, to my mind it is an interesting variation on the core/satellite portfolio construction methodology.
The core/satellite methodology is predicated on the belief that some sectors of the market (for example large-cap equities) are efficient. The thinking goes that efficient markets should be indexed, so that investors can at least capitalize on lower costs and greater tax efficiency. The satellite portion of the portfolio is generally invested in less efficient markets, or opportunistically, to capture alpha. The skill-weighted methodology takes the concept one step farther, dividing the noncore portion of the portfolio into two parts: an active ring, for asset classes such as small-cap stocks, real estate and high-yield bonds, and an alpha rim, for riskier investments such as sector funds, emerging markets, private equity and hedge funds. The skill-weighted allocations and models were developed in conjunction with Standard & Poor's Investment Advisory Services LLC.
The first part of the process is a "Raise the Issues" script, which can be downloaded at the site. This well-crafted script, presented in a relaxed Q & A format, essentially lays out the rationale for a low-cost, indexed core portfolio component, and introduces the concept of satellite components to compliment the core. Next, the advisor presents a short PowerPoint show (also supplied as part of the service) that demonstrates how a hypothetical "traditional" portfolio can be reconstructed as a skill-weighted portfolio and what the potential advantages of such a change might be (lower cost and greater terminal wealth for the client after taxes and all investment-related expenses). Like the script, the PowerPoint presentation is high quality and appropriate for use with high-net-worth prospects. Finally, the first meeting closes with an offer of a custom analysis, which will contrast the prospect's current portfolio with a hypothetical skill-weighted portfolio.
Next, the advisor goes online and enters the prospect's current portfolio. A user-friendly interface speeds the task. An advisor enters where the account is held, investment type (stock, mutual fund, etc.), ticker, wrap fee (if any) and valuation. The program automatically assigns an asset class. The platform then generates a report in PDF format that is presented to the client at the second meeting. In most cases, the report will illustrate flaws in the current portfolio. In addition, it will show that the skill-weighted approach is preferable to the prospect's current investment approach. At this point, the prospect should be ready to engage the advisor.
Assuming that the prospect is now a client, the third meeting involves profiling the client in more detail, with the help of the provided profiler. This step also includes a bit more in-depth client education, which is designed to align the client's expectations with investment realities.
Finally, at the fourth meeting, specific recommendations based upon the client's responses to the profiler are presented. The recommendation report includes a restatement of the client's answers to the profiler (sort of an abbreviated investment policy statement), an explanation on of the recommended allocation to core, active ring and alpha rim, as well as a suggested diversification of each tier. Also included is an appendix, Perspective on Performance Expectations, which illustrates the historical performance of the various tiers, including "number of losing years" and "worst one-year performance."
I did encounter a few annoyances during my test drive of the platform, but they were relatively minor. One was the inability to edit an entry placed into the customized prospect report. When I typed an incorrect value into the system, there was no way to edit it that I could discern. I finally just deleted the entry and re-entered it correctly. Since entering a holding only takes seconds, this was not a major problem, but it indicates some sloppiness in the software design process. Second, one must rely upon the platform to assign an asset class to a holding. When I entered the Merger Fund, a risk arbitrage mutual fund, the program listed it as a fixed-income investment and there was no way for me to override that setting. Finally, I'd like to see more and better integration with programs that advisors commonly use, thus eliminating the need to manually enter portfolios.