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Portfolio > Portfolio Construction

The Non-Promise of Portfolio Growth for Clients

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As most of my friends and acquaintances are aware, I’m not usually at a loss for words: although I suspect they would universally agree that I don’t always find the “right” words. Case in point: in my last blog from Dec. 2 (Fiduciary vs. Broker: It’s a Matter of Cost), I made a poor word choice, but I’m having a hard time coming up with a more appropriate alternative. What’s more, it’s a conundrum that gets right to the heart of financial advice. 

My mistake was pointed out in a comment by “Watching Out,” whose comment to my Nov. 18 blog (Are Brokers Really as Anti-DOL Fiduciary as Their BDs?) was the subject of my above-referenced Dec. 2 blog. (Are you confused yet?) His new comment reads, in part: “I really hope that you misspoke when you say that advisors promise to grow the money: that seems to imply some sort of questionable behavior.”

Indeed it does. And I know—as well as you do—that “financial advisors” are not allowed to make any kind of “promises” about future results. My mistake. Yet with that said, I must admit that I’m at a loss for a better description of an advisor-client relationship. 

By way of context, my ill-chosen wording appeared in a paragraph in which I was trying to demonstrate the differences between financial “products” and normal, everyday “products” that we all purchase: “Financial services is different from other industries: while we call investments “products,” they aren’t really products, like a car or a computer. Instead, investments are contracts: clients give their money to financial services firms (BD, bank, insurance company, custodian, etc.) and those ‘advisors’ promise (italics added) to grow it into more money, which clients can take back at some later date, or dates.” 

We can agree that financial advisors shouldn’t “promise” to grow their clients’ investment portfolios. But what can we say about the nature of investment “products?” “Manage” would be accurate, but while you and I might know what that means, I’m guessing that most clients wouldn’t. “Create investment portfolios?” Doesn’t really capture what advisors and/or financial services firms do, does it? “Asset allocation?” No comment. Hence my problem. 

To see how financial services firms describe their asset management “services” I took to the Internet. Here’s a sampling of what I found:

Merrill Lynch: “Solutions that reflect your goals. What are the things that concern you the most? The goals that drive your continued success?

I want ongoing financial advice and guidance that is designed to help me meet my goals. I want my money to last through retirement. I want to pay for my children’s education.”

Morgan Stanley Wealth Management: “For nearly 80 years, we have worked with individuals, families, businesses and institutions—to deliver services and solutions that help build, preserve and manage wealth.”

Well Fargo Advisors: “Our advisory services complement our investment planning process and are designed to meet your unique needs… …Are you getting the most from your money?” 

I also looked at a few independent advisory sites: 

Evensky Katz /Foldes Financial, Coral Gables, Florida, and Lubbock, Texas: …we develop a plan for you and your family… …Your unique plan is based on our careful review of available investment options, taxation, costs, risk, and of course, expected performance.

Morris Financial Concepts, Mt. Pleasant, South Carolina: “We start with a thorough assessment of your current position, then help you optimize and manage these resources to accomplish your goals.”

Yeske Buie, San Francisco, California: “Our approach to developing and managing investment portfolios is predicated on certain fundamental assumptions with regard to the factors that most influence investment success…”

Although each of these firms was careful not to “promise” anything, here’s what they suggest could result from the “contract” of asset management: “money to last through retirement;” “paying for children’s education;” “building wealth;” “getting the most from your money;” “optimized resources;” “expected returns;” and “investment success.” 

At least to my mind, these descriptions don’t seem to leave any doubt that the major part of the “services contract” advisors and advisory firms are offering is asset growth. It may not be “promised,” but it’s certainly implied. Sure there are some very wealthy clients who don’t really need to grow their assets. But as I understand it, even they usually want to at least keep pace with inflation, and quite often are concerned about maximizing their family wealth for future generations. 

Still not convinced? One of the die-hard “financial planning fee” advocates?

Then answer me this: How many advisory or financial planning clients do you think anyone would sign up if their pitch was: “We’ll put your money into an investment account now, and in 20 years, you’ll have exactly as much as you have today?”


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