What Fiduciary Means Right Now

If you have cash waiting to be deployed, you may be in a good position. If you have a portfolio that’s already fully invested, you may not be as fortunate. This assumes, of course, that there is more bad news to come, a belief held by this writer. So how will you insulate your current portfolios against a possible downturn?

What are the three most important words in portfolio management? Diversify, diversify, diversify. As an RIA, under a fiduciary standard, we have an obligation to our clients to do this. Diversification is one of the major tenets of a fiduciary. Even so, you may not be able to completely insulate your clients against a declining market, so communication with them becomes extremely important. We need to be able to assess the risk on their portfolios and communicate the potential magnitude of returns, checking along the way to see if the client is prepared. Understanding and managing their expectations is vital.

Developing an Investment Policy Statement (IPS) is perhaps one of the important steps you can take. This document, signed by you and the client, spells out your target rate of return, accepted and rejected asset classes, as well as other important information that can keep you both focused on the long-term objective. I think people demand more than the oft quoted phrase, “Don’t worry, it’ll come back,” even if it’s true.

Do any of you utilize an IPS? If so, I’d like to hear from you. Did you write your own? If not, what do you use?

Maybe you don’t feel an IPS is necessary. If not, I’d like to hear your comments as well.

Thanks for reading.