Take, for instance, my Hershey lady. I naively drafted a portfolio makeover without determining whether she had any personal input that she wanted to make into the process. Fortunately, with that one manageable exception, she had intended to hire a pilot. When a client wants to hold sacred certain securities, I ask myself two basic questions. First, to what extent might keeping this security compromise my best professional judgment. Second, is the amount of money involved material to the client's pursuit of her goals.
The Hershey stock was less than 1% of the client's portfolio value, and it is a classy company. I wish I were wise enough to know with conviction that a small position in Hershey was going to add or subtract value from a portfolio over time. The client's apparently unreasoned attachment to a stock, especially a blue-chip stock, has just as good a chance of adding value as my professional judgment about it. I could not say that holding 200 shares of Hershey would compromise this woman's portfolio. So Hershey was a keeper!
Now if the amount were more significant, and/or the quality of the stock more suspect, I would probably choose to contest the client's input even at the risk of jostling an otherwise smooth relationship. I would be gracious but insistent if, for example, an executive of an unprofitable Nasdaq business wanted to keep 50% of his modest portfolio in his employer's stock.
Naturally, clients have a right to exert any influence they want to on their portfolios; after all, it is their money. But ultimately, whatever the degree of involvement clients reserve to themselves, the advisor's professional reputation is going to be influenced by the eventual performance of the recreated portfolio. Since it is going to be regarded as your work, you will want to insist that it is essentially representative of your best judgments.J. Michael Martin, JD, CFP, is president of Financial Advantage in Columbia, Md.