Barry Glassman, CFP

Barry Glassman, CFP®

His vision for starting GWS was to deliver investment strategies and wealth management services typically available at the highest levels of wealth. Today, clients benefit from these sophisticated financial services targeted to meet their unique needs.

In the normal course of life, each of us is faced with times when we need to find a professional to help with a particular need. We know to hire an attorney to structure a will or to seek out a qualified doctor when we are sick. But why should you seek out a financial advisor or investment advisor? What expertise can they provide that you can’t possibly do yourself with the help of a Kiplinger’s magazine, Yahoo Finance and an account at Charles Schwab?

I’d like to suggest that a financial or investment advisor is worth his/her weight in gold (no pun intended) and can impact your portfolio in 4 key ways:

1. Creating an Investment Plan

Our clients are very smart, successful people capable of managing their investments if they wanted to. What our clients realize is that no matter how successful they are in their careers, they need financial guidance and came to us for an appropriate investment portfolio for their life goals and objectives. The purpose for an investment plan is to best match a client’s risk profile/tolerance with their return needs. A thoughtfully constructed investment plan accomplishes this.

The skilled, experienced financial or investment advisor will build a robust portfolio including multiple asset classes and investments (US large, midcap, small, microcap stocks, non-US stocks, municipal bonds, investment grade corporate bonds, high yield bonds, commodities, energy infrastructure Master Limited Partnerships, real estate, etc.). Some of these investments will move with the stock market, others with the bond markets and some to the beat of their own drum.

Well-structured and diversified portfolios have been proven to hold up better during periods of markets stress. This greater stability and lower volatility improves the chance of long-term investment success.

2. Structuring a Robust and Diversified Portfolio

There are few free lunches when it comes to investing. Successful investing is as much about controlling what you can as it is recognizing that you cannot control everything. A good financial advisor will:

  • Keep fees very low
  • Strive for tax efficiency through various strategies including buy and hold, asset location and tax loss selling
  • Diversify investments

In my opinion, diversification is under-appreciated. Diversification is the recognition that a thoughtfully constructed, diverse portfolio of stocks, bonds, real assets and alternative assets is more likely to achieve a client’s desired rate of return over a market cycle than any other approach. Why? Diversification ensures you’ll always have exposure to the best performing area of the markets, (S&P 500 +32% in 2013) as well as the worst performing area of the market (Commodities down 9.5% in 2013). The key is staying disciplined and rebalancing your portfolio. This is where your advisor comes in.

At its core rebalancing is simply a buy-low/sell-high discipline. For instance, after a great run from 2003 to 2007, stocks (sold high) would have been rebalanced into bonds (bought low). After the 2008 great recession, bonds (sold high) would have been rebalanced back into stocks (bought low).

The benefit to clients is a more consistent portfolio structure. This discipline and rebalancing means better risk-adjusted returns. But most importantly, clients will worry less that a downturn in the markets will have an impact on their portfolio greater than they can handle.

3. Reduced Investment Fees and Improved Tax Efficiency

Transparency and information are key when selecting a financial advisor. Do you really know how much you are paying in fees in your mutual fund? Did you pay a load (commission paid when you buy or sell certain classes of funds)? Is there a 12b-1 (marketing) fee that you are paying? Is there a trailer (here’s that commission again) being paid to your advisor every year? The best advisors focus on getting their clients into funds without a front-end load and with very low absolute fees, preferably institutional pricing. Oftentimes, the fee difference between the institutional share class and the A share class can be as much as 0.50% to 0.75%. This annual additional fee adds up over time and reduces the return a client keeps.

There is also a number of ways that your advisor should improve your portfolio’s tax efficiency by:

  • Focusing on investing in the most tax-efficient investments, think Vanguard index funds, equity ETFs or active managers who hold the stocks they buy for a very long time (low turnover).
  • Thoughtfully placing investments that are the least tax-efficient in tax-deferred accounts (401k, Roth IRA, 403b, etc.) while leaving more tax-efficient investments for taxable accounts.To learn more about this strategy, we have a great explanation of this in our asset location article.

4. Reporting and Discipline

The best financial advisors schedule periodic, yet regular times with their clients to discuss the current state of their portfolio, investment returns and whether any changes to either the allocation or investments are warranted. As a fiduciary, a financial advisor will communicate when the portfolio should be rebalanced, as well as when there might be embedded risks in the portfolio that should be mitigated.

Two examples come to mind.

  • First, having a thoughtful plan and sticking to it is one of the surest ways to ensure your portfolio is positioned for potential returns. Post the great recession of 2008, while most clients were selling their equities, the best advisors were advising that the portion of the portfolios that had done the best, high quality bonds, be rebalanced into the assets that had done the worst, equities. Maintaining this buy-low/sell-high approach ensured that clients had enough in equities to subsequently benefit from the now 5-year bull market that began in March 2009.
  • Second, keeping up with market risks. In today’s environment this includes ensuring that the bonds owned in one’s portfolio are the most appropriate for what will likely be a rising interest rate environment for the next many years to come.

Whether the portfolio ultimately meets a client’s expectation will depend on the proper portfolio structure, disciplined rebalancing, low fees, low taxes, and ultimately, the one thing we can’t control, broad market performance. The best advisors take care of these 4 key benefits for their clients’ portfolios and let the markets do the rest.

Are you experiencing these 4 key benefits with your current financial or investment advisor? Do you think your portfolio could benefit from working with a financial or investment advisor?

Ready to get started?

Connect with a Glassman Wealth advisor today to continue the conversation.