Investment management - 2010

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Dec 23, 2009 11:45 am

OK, so I'm looking at my business plan for 2010, seeing if need to tweak it at all from 2009.  The one thing that keeps sticking out like a sore thumb is simply the vast number of different investments that I have in my book:


RANKFUNDS = 264 funds
RANKSTOCKS = 146 stocks
RANKBONDS: CORP = 36 issues
                      MUNI = 82 issues
RANKANN = 29
 
Just looking at the funds and stocks is over 400 issues.  Now granted with the funds there's probably 1/3 of the funds that are B shares or 529 shares.  But, still we're talking about 350 different investments that I'm supposed to follow.  If I just spent 15 minutes a month doing some sort of due diligence on each of those things, like I told my clients I would, that's almost 90 hours a month I would spend just on keeping myself up to date on those investments.  And that's not doing any research at all on new investments. 
 
I'm curious how the rest of you handle the investments in your book.  I've come to realize that I can't possible follow that many different investments as well as I should.  I'm sure I'm not alone in this.  Has anyone been where I am and got things to a point where they were managable?   
 
                     
 
Dec 23, 2009 11:56 am

For all new clients since about 18 months ago, I use pretty much all the same funds, in different ratios.  Less to keep track of.  It's tougher in NQ accounts with tax planning issues, liquidity needs, savings goals, etc.  But in IRA's, it's pretty simple.


I would slowly start consolidating as you do reviews.  This will be very easy for funds within the same family.  For multiple fund families in A shares, it's a bit tougher.  You don't really want to charge new commissions just for "simplicity" sake.  FINRA does not really like those explanations for charging new commissions.
 
This is one of the reasons I like to get porfolios straight as soon as they transfer in or rollover.  I don't like having to go to a 5 year client and tell them to change things because it's simpler. 
 
As far as stocks, that's a tough one.  Unless you are running discretionary funds, it's tough to tell people to sell good stocks just because you don't want to follow them.
 
If it's any consolation, I just checked mine - 173 funds, 192 stocks.  Many of the funds are 529 or C share equivalents, so maybe it's really like 140-150 funds.  And then probably 25 of them are advisory solutions funds, so we are still talking 125 different A share funds. 
Dec 23, 2009 9:03 pm

Having that many positions shows you've put a lot of effort into investment selection, but you've been short-changing clients on your monitoring discipline, and especially selling discipline.


You need to better define your philosophy to investment management.  Once you put pen to paper on your true beliefs, you'll see the disconnect between 1) your ideal and 2) what's actually in the portfolios.  Then you can go to work on addressing the imbalance. 
 
By the way, sitting down with clients and refreshing them on your philosophy and process is an absolute asset MAGNET.  Confidence breeds trust and respect.
 
There's nothing wrong with going to clients and saying, "hey - you hired me to do a job for you.  The stuff you own doesn't fit my investment philosophy; .  I believe it'd help us work more effectively toward helping you reach your objectives if we made the following changes...".
 
#1 This is a major argument for the use of running a fee based business.  I don't like the idea of having a transaction fee being a distracting factor to a client, and the thing that may ultimately stop them doing the right thing for themselves.
 
#2 If you're not willing to do that...
 
i) Mutual funds: look at the families you use, and develop model allocations with each.  Make them a 6-fund allocation for larger accounts, 4-pack for mid, and try to look for a "cookie-cutter" allocation fund offering for small.  Do NAV transfers from existing positions where appropriate.
 
ii) Individual stocks: someone can't diversify properly with less than 2/3 holdings for each sector.  To justify transaction costs for 30+ stocks, the account has to be pretty damn big.  And what about rebalancing (?) - even more cost.  Individual stock business is best suited to fee based accounts.  Otherwise, they're better off in a fund.
 
iii) Individual bonds: if someone wants price stability, buy a bond fund.  If they want income stability, buy individual bonds. 
 
iv) Retail advisors should really stay away from managing (note the differention between managing and holding) individual stocks and bonds.  If you're truly that good, you should go and work for a mutual fund instead.  You'd drive a better car
 
v) The best way to move people out of individual holdings is to work on designing a strategy for future income/goals.  Once you know the destination, you can point at the most sensible vehicle to get from A to B...it's unlikely the best vehicle is going to just so happen be the one stock they've held for the last 15 yrs :)
 
Lastly, here's another way to look at your issue:  With as many CUSIPs as you have on the books, your "practice porfolio" is essentially an index fund.  Unless you work for Vanguard, I'm pretty sure you're not an indexer.  If you want your "practice portfolio" to grow like a professionally managed portfolio, you're going to have to do it with fewer holdings. 
 
Wow.  I didn't mean to type that much.
Dec 28, 2009 10:51 am
dividend_and_conquer:
Wow.  I didn't mean to type that much.
 
I have that same reaction about once a day on this forum. 
 
Thanks for the ideas. 
 
I think what it boils down to for me is that I have to figure out what I want to get really good at:  managing money or "financial planning".  I don't believe that I can do both as well as they need to be accomplished.  I've survived this long trying to do a little of both.  It makes me feel bad when I'm spending time researching and studying investments that I'm not spending more time planning.  And vice versa. 
 
B - I agree that my FSD wouldn't really appreciate the switch letters that are answered "Because Spiff said that he didn't want to follow Goldman Sachs funds anymore."
Dec 28, 2009 2:39 pm

That's going to be difficult because I'm not catholic. 

 
 
Dec 28, 2009 5:30 pm

Spiff

I love managing money, and while I'm no El-erian, I have done ok.
But i know deep down that the reason my clients are sticky, is because i talk to them about planning all the time. I'm working hard to get better at it.
 
I struggle with the same issue you do, obviously, but i realize the answer is to spend your time doing big picture stuff for your clients and finding more of them to do it for, because,
1. you won't outperform every year (unless your Gaddock) and 2. assets = revenue
 
I disagree with a lot of what Nick Murray says. But one thing i read in his books that i think is right on point is that the predominant determinant of investor results is investor behavior. Not which fund or etf or stock they own. And the best way for me to show value is to help them invest based on a plan and their goals, not based on what i think the market is gonna do next.
JMHO
Dec 28, 2009 6:42 pm

That seems to be where I'm leaning.  The longer I'm in this business the more I realize that I don't really care if my portfolio has a better Std Dev if you aren't going to work with me on the overarching plan.  I can spend all day long looking at mutual funds and building a better mousetrap, or I can focus on changing my investors behavior and how they look at their financial life.  Save more + Spend less = happy client who has reached his/her goals. 

Jan 19, 2010 1:48 pm

1) Fee-based practice.

2) Consider hiring an analyst, paid 15 bps on AUM.  (you might need to make sure you have $45MM or more under management first, or else you'll have to increase the payout.)
3) With the 90 hours per month you save on research, you can do more periodic reviews, citing the strategy pitch and ongoing commitment to the client's well-being.  Dividend_and_conquer is right about the MAGNET that is keeping your clients informed of your process and how it's working for them.  They don't care what the returns WOULD HAVE BEEN if you hadn't made these changes.  All that matters is that you've demonstrated that you're willing to invest in tools and resources that further assure their success.
4) Implement a referral process in your practice that will pay for the new analyst you brought on board.
Jan 19, 2010 2:39 pm

Who's spending 90 hours per month on research??  I'm not even sure I work 90 hours per month (does surfing RRep count as working?)

Jan 19, 2010 2:48 pm
B24:

Who's spending 90 hours per month on research??  I'm not even sure I work 90 hours per month (does surfing RRep count as working?)

 
I sure hope so.
Jan 19, 2010 3:12 pm
SometimesNowhere:
B24:

Who's spending 90 hours per month on research??  I'm not even sure I work 90 hours per month (does surfing RRep count as working?)

 
I sure hope so.
 
It does as long as I'm learning something. 
 
 
Jan 19, 2010 3:26 pm
SnoopyIAR:

1) Fee-based practice.

2) Consider hiring an analyst, paid 15 bps on AUM.  (you might need to make sure you have $45MM or more under management first, or else you'll have to increase the payout.)
3) With the 90 hours per month you save on research, you can do more periodic reviews, citing the strategy pitch and ongoing commitment to the client's well-being.  Dividend_and_conquer is right about the MAGNET that is keeping your clients informed of your process and how it's working for them.  They don't care what the returns WOULD HAVE BEEN if you hadn't made these changes.  All that matters is that you've demonstrated that you're willing to invest in tools and resources that further assure their success.
4) Implement a referral process in your practice that will pay for the new analyst you brought on board.
 
For almost $70K a year, I'll do the analysis myself.  Or for the same pay on a much larger book, I'll be the analyst.   
 
Snoopy - All good suggestions outside of EDJ, or the wirehouses I would suspect.  Thanks for the input. 
 
 
Jan 19, 2010 6:34 pm

Planning is great. I've never had a person referred because of planning. I've had huge referrals for making a rather complex strategy simple to understand and have had awesome performance. I believe if I can keep bring in the money more than the next guy the planning simply falls into place. Judging by my rank among my peers it's working in a huge way.

 
It's all about making money IMHO.