Do your client portfolios carry hidden baggage?

After ten years on the road, I finally bought a new piece of luggage and discovered that my act of consumerism and client portfolios have a lot in common. Have I piqued your interest?

My previous decade-old rollaboard traveled a distance equivalent of where you stand now to the moon, plus some. It stood by me during many small overnight trips within my New England territory, on larger trips across the country to our home office in Seattle and even on more exotic adventures out of the country. We both enjoy a good adventure, after all.

On all these trips, this trusty forest green (easy to spot) rollaboard faithfully rolled alongside me. Despite the many nights and extensive mileage, my travel buddy remained in good shape. Sure, there were scratches, wear-and-tear spots in the ballistic nylon and a busted zipper tab. Yet my rollaboard remained serviceable all the way through to the end. 

So, why did I get a new one?

One word: UPGRADE

Luggage technology has advanced a lot in the past decade. My simple rollaboard that seemingly met all my travel needs no longer measured up to the newer models. The new model I had my eye on was made of hard polycarbonate shell, had four swiveling wheels and boasted a built-in laundry bag and smartphone charger.

While it would be easy to look at my new purchase as a potential extravagance, having an upgraded, modern piece of luggage makes my frequent journeys a little easier. In turn, this makes my work a little easier, enabling me to carry out my job in a more efficient manner.

Here's where my rollaboard experience relates back to client portfolios

Asset management is arguably one of the most sophisticated services on the planet. If a simple piece of luggage could evolve so much in a decade, I am confident the offerings in our industry have evolved at an even faster rate. As a result, many client portfolios built on pre-2008 thinking are in serious need of an upgrade. 

Suspicious objects lurking in today's client portfolios

In examining client portfolios, below are some hidden baggage markers to identify pre-2008 thinking:

  • Lack of proper diversification
    • The portfolio falls short of meeting basic tenants of diversification, is heavily overweight a single security or asset class and has little or no exposure to alternatives--the things that fall between stocks and bonds.
    • The portfolio follows naïve diversification, owning multiple funds with similar investment objectives and multiple vintages of a target date solution, or is split across multiple advisors who, as a result, are all operating without the client's total picture in mind.
  • Out of balance/alignment
    • The portfolio no longer matches the investor's investment objective due to the lack of an automatic rebalancing feature.
    • The portfolio is out of alignment with the investor's objectives due to incomplete or outdated risk profiling.
  • Lack of dynamism
  • Yesterday's winners
  • Expensive thinking
    • The portfolio includes significant allocations to funds with above-industry-average expenses.

If any of the hidden baggage markers from above are present, then it's highly likely the client you're working with unknowingly owns the decade-old green rollaboard equivalent of a portfolio. Upgrading them to a modern solution should be a top priority of yours. 

Why newer may be better

Today's model portfolios are built on sophisticated trading platforms. These platforms allow for easy initial placement of funds, ongoing contributions and, ultimately, withdrawals (systematic or one time). The trading platforms maintain asset allocations and handle security purchases directed by skilled investment professionals. This is all done while rebalancing the account along the way, ensuring adherence to the client's stated investment objective. 

At Russell Investments, we educate advisors on how model strategies incorporate these modern features designed to help clients achieve their desired outcomes. We also assist advisors in transitioning clients to portfolios that are structured to lessen the strain of the journey toward financial security. Not only do we help advisors manage assets, but just as importantly, we help manage emotions positioned to help keep clients invested when the inevitable bumps occur.

The bottom line

Whether it's shaving time off a cross-country trek with a new piece of luggage or eliminating roadblocks to financial security with an updated portfolio, upgrades may take us all one step closer to achieving our financial goals. At Russell Investments, we work with advisors to help client objectives become a reality. Connect with us and discuss this simple story with your clients as you look to upgrade their portfolios.

 

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