But in the investment world, an ironclad rule is that if you want to do better than the crowd, you must out of necessity look different from the crowd.

A More Robust Advisor-Client Experience
A more value-added and durable advisor/client relationship results when the financial planner abandons the Marcus Welby approach to portfolio construction. The advisor must set aside his own personal preferences about costs, taxes, active management, downside protection, and peer similarity.

Instead, the advisor must engage the client in a robust discussion about the nature of these five factors. Such a dialogue allows the client to reveal his preferences for each and to determine what tradeoffs he wants to make (for instance, he should know if he wants active management, he must be willing to give up active tax management and be willing to pay more).

With this approach, the retail client follows the path long employed by institutional investors that considers alternative implementations (for example, choosing passive management at a lower cost, active management at a higher cost, etc.). The advisor now takes on the role of coach, helping the client understanding the pros and cons of different portfolio constructions.

Finally, and most important, the advisor stops doing things like placing tactical asset allocation managers in a client’s account because the advisor likes them. Instead, he repositions himself in the back seat, putting the client in the driver’s seat. The client determines the structure of his own portfolio based on his own preferences and understandings of the five factors that he now controls.

Rob Brown, PhD, CFA, is the chief investment strategist at United Capital Financial Advisors in Newport Beach, Calif.

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