Have you ever sat in front of a new prospective client looking at their statements, shaking your head and wondering how on earth their portfolio was put together? Ask the client, “Can you help me understand the strategy behind this portfolio?” Most times they have no idea. Maybe there was a strategy at one point, but now at best, it’s simply a collection of investments.
Like many financial advisors and planners, you may believe that developing and managing personalized portfolios for your clients is an important part of your value proposition.
Clients like the idea that someone who knows them well and really understands what they want to accomplish, as well as whatever concerns they may have, is taking a hands-on approach to their investments. They appreciate having someone who knows a lot more than they do, doing the research, determining which stocks to buy or sell, and handling all the details.
The challenge for many advisors is that they have not taken the time to define their investment approach and process so they can communicate it effectively to clients and potential clients. When compared to “professional” money managers, they can come across as “flying blind” with no discernable strategy and no track record.
Here are three steps you can take to tell your investment story with confidence.
Step 1. Get started by putting together what you believe about investing.
- Start with the big picture and describe what you believe and why you believe it. For example, what do you believe about active versus passive investing, or basic asset allocation?
- Then drill down to your beliefs about stocks, bonds, and alternatives, including risk parameters and expected returns, as well as investment vehicles, such as individual securities, ETFs, mutual funds, annuities and separately managed accounts.
- Don’t forget to include the impact of client goals and emotions, risk management, rebalancing, and the other details of successful portfolio management.
Step 2. If you haven’t already done so, build a model portfolio based on the beliefs and parameters you’ve outlined and set up a process to begin to track it. Assume an initial investment of $1 million.
Step 3 – Put together your talking points for a one-page fact sheet. Here are sections to include:
- Portfolio Name – Whenever you name something, it becomes “real.” Give your model a name so you can talk about it as a real entity.
- Strategy Description – This is a short paragraph or two that explains your investment approach – what it is and how and why you put it together.
- Portfolio Highlights – These are the bullet points that give the details that investors typically want to know. It would not provide any performance information as presumably your portfolio hasn’t existed long enough to have reportable returns.
- Expected number of holdings
- Expected dividend yield
- Style box information
- Target industries & companies
- Investment objective
- Approximate turnover
- Asset allocation percentages (pie chart)
- Description of which investors are most appropriate for this portfolio
- Details of the specific benefits of this portfolio to its investors
- Your contact information
Remember that investor who had no idea how to describe the strategy behind their portfolio? Don’t let that be your client!
Check with your compliance staff as to whether or how to make your one-pager approved for use with clients and what disclosures may be required.