Dining out can be a great experience unless you have special dietary requests that the chef is unable to accommodate. Perhaps you are a practicing vegan or doing the Whole 30 diet. This can limit your options and otherwise be a drag on your company. Similarly, we think that investment portfolios should be made to order, depending on the special needs of the client.
In reality, most portfolios offered at the big wirehouses are unwilling or unable to accommodate your tastes and preferences. You, the investor, answer a brief questionnaire, and then get put into a model portfolio. This may be a sufficient starting point for someone who doesn’t have any assets or is just beginning to start investing, but it is wholly inadequate for someone with a more nuanced financial situation.
It is for this reason that we use the most sophisticated data aggregation software available today. This helps us account for your employer-based 401k or illiquid assets, such as your home and hedge funds that you may be invested in. This is done in real time, which gives us the whole picture of your financial situation on an ongoing basis. This is important because the fluctuation in value of all of your assets, not just your brokerage account, will have a material impact on the financial planning that we conduct on your behalf. This should seem pretty intuitive: we need to understand what the ingredients are in order to cook you a proper meal.
Cookie cutter investing is comparatively limited in depth. Sure, there is a basic due diligence questionnaire that precedes the allocation recommendations, but what if any of those inputs change? For example, what if the value of your 401k fluctuates? What if there is dividend recapitalization in your private equity fund? Or what if you sell your second home?
Is a cookie cutter investment portfolio going to account for all of this? Um, no…
This is all the more relevant as your risk tolerance or life circumstances change. Perhaps you want to dial down your risk tolerance as you near retirement. If your financial advisor is only looking at your brokerage account, a change in your risk tolerance may only be reflected in a finite portion of your assets. In this circumstance, you are likely to be assuming more risk than you intend to.
Another issue is that cookie cutter portfolios are often quite rigid in their allocation. Have you even found yourself frustrated with the limited options on your 401k menu? This may be because the plan sponsor, Fidelity, for example, only wants you invested in Fidelity funds. But maybe Fidelity funds are not in your best interest. The benefit of an independent RIA, such as SWS Partners, is that it is not built on selling the house-cooked products. We believe in developing a financial plan first, not finding products that can be shoehorned into a model portfolio in the name of advice.
This is our à la carte philosophy to building investment portfolios.