Big Picture and Little Details: Investment and Portfolio Management Tips

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For financial advisers acting in a fiduciary capacity in regard to investment selection and management, it’s easy to get caught up in the details and lose sight of the big picture; or see the big picture but fail to see the importance of the finer points. Managing client portfolios can be a time-consuming and somewhat complex process. Here are a few tips and ideas addressing the big picture and the important little details often overlooked in the portfolio management process. A few of these ideas are well-known but deserve to be repeated!

Investment Policy Statements
Big picture: When it comes to creating an investment policy statement (IPS), the goal is to craft a simple and consistent policy that offers enough structure to be effective in guiding the portfolio, but flexible enough to accommodate market changes without having to construct a new policy with every market turn. Be sure the IPS only includes important details and leaves out unnecessary constraints.

Little details: It’s a good idea to check for conflicts and inconsistencies within the policy or constraints that create difficulty in implementation and management. For example, most policy statements provide allocation guidelines and state the rebalancing policy of the portfolio. Be sure the rebalancing strategy fits with the allocation ranges and vice versa. A tight allocation range and a broad rebalancing trigger for a given asset class will make compliance with the IPS and management of the portfolio much more challenging. It’s worth looking at the details of the IPS to make sure they work together to create a policy that enhances—not hinders—the portfolio management process.

Big picture: What’s better: quantity or quality? Do I want to offer my clients every possible investment, or do I want to offer limited portfolio options that are of the highest quality? As an independent adviser or a smaller boutique firm, it is difficult and both time and cost prohibitive to do both. If you are acting as a fiduciary, usually the best option is to choose quality over quantity. It’s all but impossible to conduct proper due diligence and monitoring on an infinite array of investments. Creating and managing model portfolios will help control the quality of the investments, the portfolio and the fiduciary process.

Little details: Monitoring investments is a time-consuming process, even if it is only a select list of investments within a model portfolio. It helps to have a consistent, yet simple, monitoring process to follow. For each investment in your model, put on your calendar the dates you will conduct your review of the investment (this may be every month or every quarter). Create an “investment review report” template that outlines the general components of your investment review and a checklist of review tasks. When the date rolls around, you have a basis from which to start your review, a report outline by which to document your review and a history of your past reviews—which makes the review process less daunting and time consuming.

What are your big picture and little details tips and tricks of the trade? Please share your tips and ideas by leaving your comments on this blog post!

Editor’s note: For an excellent look at how to create an efficient fiduciary process for your practice, see Janelle’s article in the September/October 2011 issue of Practice Management Solutions magazine, “Fiduciary Standards: The Proof Is in the Process.”

Janelle McMurdie-Kahler
Senior Partner
Independent Portfolio Services
Temecula, Calif.

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