You must work with model portfolios

DO YOU KNOW YOUR ADDED VALUE?

It is not uncommon to find that some investment professionals compose a new portfolio for each of their clients. The team of program Standop, an optimization solution for independent advisors, conducted over a hundred client diagnoses for counselors. The results are impressive. On average, advisors hold:

  • 344 customers;
  • 218 different funds;
  • 17 different fund companies.

Is it really possible to track the performance of over 200 investment products? Maybe yes, but of course to the detriment of the service offered to customers!

According to the most recent study Russell InvestmentsCanadian financial services advisors added 3.85% of tangible value to their clients’ accounts in 2021[1]. However, this value comes not from stock picking, but from behavioral coaching, wealth and tax planning, and active rebalancing of client portfolios.

Knowing that the biggest sources of added value are not related to the short-term tactical management of your clients’ portfolios, isn’t it appropriate to dedicate a smaller part of your time?

A “BAD INVESTMENT” OF YOUR TIME

There are only 24 hours in a day and unfortunately no way to clone yourself has been discovered. Time has become increasingly scarce for advisors for whom the diversity of tasks and volume are constantly increasing. It is therefore essential to question yourself and optimize your days to progress by maintaining a healthy life balance.

Research conducted to quantify the value of a financial services professional’s time shows that an advisor who delegates the design of their portfolios spends twice as much time meeting with clients.[2]. On the other hand, the council that “builds its portfolios” sees itself penalized in the annual growth of its activity; We are talking about an increase in assets of $815,000 for the board that builds its portfolios compared to $1,900,000 for the board that delegates this aspect[3].

The numbers certainly speak for themselves. However, even beyond the numbers, there are many other benefits to centralizing and standardizing customer cards:

  • Limit conversations focused on portfolio returns: this allows more focus on other value-added advisor tasks. In addition, when we “sell” performance, we create expectations on the part of clients that can sometimes lead to their departure for an advisor who has achieved “better performance”.
  • Reduces the amount of investment products distributed: a reduced number of funds makes monitoring and in-depth knowledge of each fund offered much easier.
  • Systematize business practice in savings: working in a uniform way, the council is able to develop its business more quickly. If he wants to integrate new advisors or hire administrative staff, he will have the advantage of speeding up training and reducing the daily workload of his team by working with pre-designed portfolios.
  • Choose the right times to make updates: the council can take advantage of its less busy periods to update the products it uses or its portfolio of models, which is difficult to do when a wide variety of products are used.
  • Ensure the quality of your clients’ portfolios: a structured approach with clear optimization parameters greatly improves the solidity of portfolios and, by the same token, their long-term performance and behavior, regardless of the contexts of the market.
  • Promotes the control of emotions (behavioral finance): working with model portfolios decreases the influence of the emotions experienced by the advisor and the client, often linked to short-term market trends. Very often, when a change is made in a customer portfolio, the products that performed less well are removed to add the one that works well. Unfortunately, this practice goes against basic investment principles.[4].

HOW TO IMPLEMENT TEMPLATE PORTFOLIOS

Advisors who want to implement their model portfolios have 3 options: create them themselves, collaborate with other advisors or ask for help from the sales representatives of fund providers. Of course, it is also possible to combine these options. For example, many like to ask the opinion of colleagues on certain mandates, then do a personal analysis later.

If the professional prefers to completely or partially delegate the creation of his portfolios, he can use the services of fund providers. However, if the board wants to work with products from different companies, it must collaborate individually with each of them to make its overall selection.

However, some companies offer the production of model portfolios that can include several different families of funds, as RGP Investissement does with the Standop program. Through this program, the team of experts composed of actuaries and financial analysts supports the adviser in the systematization of his savings processes, which involves assistance in the creation of portfolios of personalized models according to the needs and preferences of the advice[5].

Regardless of the method chosen, the advisor must take the necessary time to accomplish this task. It will be a very good investment in the long run!

[1] RUSSELL INVESTMENTS. Value of an advisor, 2022, https://russellinvestments.com/ca/en/resources/financial-professionals/value-of-advisor

[2] UTE, The value of time: quantify how customer focus increases the value of your business2016, https://seic.com/sites/default/files/SEI-Value-of-Time-Report.pdf

[3] Same.

[4] This subject is discussed in more depth in this article from ARSF: https://www.finance-investment.com/zone-experts_/lassociation-de-la-releve-des-services-financiers/la-surperformance-boursiere – a utopia/

[5] Visit their website to learn more about their services: https://standop.ca/accueil

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