Putting People Ahead of Portfolios

Changing the financial industry

Apple co-founder Steve Jobs once said: “The broader one's understanding of the human experience, the better design we will have.”

It is a comment that will resonate with many financial advisors — considering their responses to a question frequently posed by "Advisors Magazine:"

“What needs to fundamentally change in the financial industry that you feel has been missing in the dialogue and approach for investors today?”

The most common answers, in fact, tend to relate to broadening financial advisors’ comprehension of client experiences and values.

Karen Asbra1“Most advisors focus on trading client portfolios — picking stocks or positioning the portfolio for ‘the next opportunity,’ or ‘the next crash,’” said Karen L. Asbra, CFP® and principal/chief operating officer at Illinois-based Rappaport Reiches Capital Management. “While return on investment is important, something is missing,” she continued. “Our industry is so focused on analytics and strategy that the discussion of core values is often incidental.”

Asbra considers core values as the beliefs by which people strive to live. “They are the priorities that you value most — such as family, meaningful work, or giving back to your community,” she added. Perhaps health and fitness, or the flexibility to come and go as you please.”

All clients face decisions on family, careers, lifestyles, philanthropy, as well as how they spend their time and money. “Focusing on their core values can provide guidance to help them navigate their way through life,” Asbra said. “As advisors, we are in a unique position to bring core values to the forefront of financial planning conversations.”

Marilyn Suey, CFP® and an Accredited Investment Fiduciary® (AIF) with The Diamond Group Wealth Advisors in San Ramon, California, agrees that investments and performance have tended to rule the day in the financial advice industry.

MS 1“Our practice focuses on more than just investment returns for our clients,” she said. “Our clients are focused on living their ideal lifestyle, starting today, tomorrow and for life.”

As such, the integration of clients’ lifestyles with their strategic financial plans, including investments, insurance protection, estate planning, and retirement readiness, is the conversation all financial advisors should be leading with their clients, Suey maintains.

“It is not selling products or one-stop solutions,” she explained. “It is the comprehensive discussion that is customized for each family, each business owner or executive, so that they can focus on enjoying their lifestyle, and the people and causes they care about deeply.”

While deeper dives into client lifestyles and values are key items on industry practitioners’ to-do lists, increasing transparency and a dialogue centered around investment philosophy are also vital.

“The financial industry has become more and more opaque,” Helen E. Graf CFP ® CDFA®, and president of Graf Financial in Baton Rouge, Louisiana, told "Advisors Magazine."

“Most investors do not know what they hold in their investment accounts,” she maintained. “Nor do they know the true costs associated with those investments.”

Graf explained that funds are commonly used, as well as collections of funds representing different market segments. This means clients need to drill down into such funds to see what they actually hold.

“Sometimes there are a lot of duplicate holdings which serves to increase the clients’ exposure to a particular stock or sector,” Graf said. And funds can also be so diverse that they water down overall returns. “[Berkshire Hathaway’s] Charlie Munger refers to this as ‘diworsification’,” she added.

changes 1000“Then there is the trading of the funds themselves in the portfolio,” Graf noted. “We have seen entire portfolios turn over every year; the secret to success in investing is to let compounding work its magic. High turnover rates do not allow compounding to occur.”

Graf emphasizes that investors need to be fully informed of the investments they hold and the purpose they serve in their overall investment plan. “Portfolios should be built on sound investment principles to enable them to weather various economic environments while growing in the long-term and serving the client’s unique needs,” she summarized.

In today’s environment of index funds, online trading platforms, robo-advisors and the like, many advisors and investors alike tend to believe the investing function is commoditized, according to Carin Wagner, CFP®, and vice president of wealth management at Denver-based GHP Investment Advisors.

“Investing is not a commodity, and there are many different investment approaches,” she said. “While it is important to understand a firm’s service offerings, it is even more important to understand its investment philosophy,” Wagner stressed.

“When advisors are working with clients, their investment approach — like their services — should be personalized,” she added. “Advisors should take a holistic view of the clients’ entire financial picture and create a financial plan and investment strategy created to reach their personal goals.”

Wagner acknowledges that investors have varying levels of understanding of financial concepts. “Advisors should communicate with the investor using language and concepts they can understand,” she said. “Likewise, while investors should trust their advisors, they also need to know the philosophy behind their advisors’ investment strategy and should not be reticent about asking.”


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