Portfolio reviews are like report cards for the financial advisor. They demonstrate accountability. You gave advice. Your client followed it. What has been the outcome? Although it sounds risky for the advisor when presented that way, these reviews can be great for a different reason. Clients like accountability. It also gets them onto your side, because they feel you are paying attention.
Let’s look at 10 reasons why periodic portfolio reviews are good.
1. They focus the client’s attention. Years ago, one of my clients, a high-ranking banking executive told me: “The reason I like these reviews is it makes me stop what I am doing and focus attention on my investment portfolio.”
Advantage: The medical field embraces the concept of preventative medicine. Having regular checkups and looking for changes in your vital signs is better than waiting for you to have a near death scare that brings you into the doctor’s office or the emergency room. By then it might be too late.
2. They answer some unasked questions. Your client might have heard about an investment idea from someone else. They might not thoroughly understand something they own. They may be actively prospected by a competitor.
Advantage: Initiating the meeting may bring these questions to the surface. They also show you are paying attention.
3. Rebalancing is always an issue. Prices change every day. This means the asset allocation is constantly changing. You might not seek to adjust it constantly, setting a threshold of variation instead.
Advantage: Bringing the asset allocation back into line can be the catalyst for the meeting.
4. Is your client properly allocated moving forward? Sometimes clients think getting good results in the past means their portfolio doesn’t need attention moving forward. This reminds me of the Pennsylvania advisor who explained to a client: “Your portfolio is ideally positioned for the economic cycle we just left.”
Advantage: We have been in a low interest rate, low inflation environment for years. Now that appears to have changed. Is your client properly positioned for what might happen next? Doesn’t everyone want an advisor who is proactive and thinking ahead?
5. Sector rotation occurs. The stocks that do well in a low inflation environment aren’t necessarily the stocks that will do well when inflation returns. History can be a general guide.
Advantage: When clients see the stock market going down, they may assume this isn’t the time to be in the stock market. They may not realize the “one big show” is actually multiple “little shows” being performed simultaneously.
6. Maturities in fixed income need attention. Long bonds decline in value during a rising interest rate environment. Longer maturity bonds may have served your client well for years. What about now?
Advantage: Does your client know the various strategies available to them? Would this be a good time to consider a bond ladder?
7. Is the client doing their homework? When your client is making money, they may not see the need to be saving money. When the stock market goes down, they might rationalize continuing to invest as “throwing good money after bad.”
Advantage: If your client is supposed to be consistently adding money to their retirement savings manually, it might be time to remind them about the benefits of dollar-cost averaging.
8. The opportunity to consolidate assets. Your client might have money at other firms with different advisors. They might manage some money themselves. You are demonstrating that you are paying attention to their investments.
Advantage: You can ask: “How did your quarterly review with your other advisor go?” Another question might be “What other advice are you getting?” Both are tactful, respectful questions.