The events of the past few years have taught us that as advisors, we must be more active with our clients, who need more attention than ever. We will have to work even harder to help them reassess their financial circumstances and goals.
Even high-net-worth clients, despite their financial resilience and substantial accumulated wealth, need to re-evaluate their investment, retirement and legacy considerations. For advisors, this means more frequent client contact, candid conversations and more active portfolio management.
Tactical Adjustments
The increasing number of global events potentially affecting the investment markets means advisors must spend more time researching in order to provide the best advice to clients. We have to be constantly searching for opportunities to move in and out of mispriced assets created by global developments. Capitalizing on these opportunities in a rapidly changing market environment will require more tactical adjustments to client portfolios.
While these opportunities may have existed earlier in the decade, the blowup of 2008-2009 has triggered greater disparity between different asset classes. There are more opportunities today to successfully overweight an asset category than in the past because of pricing disparity.
Exploring new investment opportunities will require an even greater level of due diligence. A more expansive and exhaustive effort is needed to implement the tactical adjustments pivotal to active portfolio strategies. In addition, each individual client situation must be evaluated to determine the most tax-efficient way to implement the strategies across qualified and non-qualified accounts, including workplace retirement plans.
Advisors typically choose between two approaches to implement portfolio management in their practice. The first is the more convenient, less laborious approach of simply dropping all client portfolios into a prefabricated model determined by the advisor or his firm. While the mix may vary due to divergent client risk tolerances, clients are uniformly compartmented into the same underlying investments.
Typically, the entire process is automated. When changes are necessary, the advisor need not act; the system makes the changes.
This approach frees up time otherwise spent on research, economic and market analysis and generally acquiring more detailed investment knowledge. It also requires less client contact and consequently is the more popular method for the majority of advisors. It's certainly an understandable choice for advisors who want more time for client acquisition or those who prefer to delegate portfolio management to others.
While the simpler model can utilize vehicles such as separate account management to employ tax-sensitive or other targeted strategies, it lacks the ability to incorporate the client's complete financial picture. It cannot provide a comprehensive, across-the-board perspective for each individual client, something critically important for high-net-worth clients. If an alternative component needs to be implemented, for example, where is the best place to do it? How will the addition meld with the client's other assets and tax considerations? What will be most efficient in terms of the client's overarching financial picture?
The alternative approach for advisors is to assess each client circumstance separately in order to arrive at an individualized allocation. There may be themes woven throughout the practice, but clients each receive their own implementation. Working with high-net-worth clients, I have found this approach to be preferable, since these individuals have outside assets, concentrated employer stock holdings and other special circumstances that must be considered.