Everyone is unique, and that is why we often pay more for goods and services that feel catered to our specific wants and needs. For instance, as a taller man with specific clothing needs, I would pay much more for a tailored outfit that I know will fit than clothes off the rack that probably won’t.
So when it comes to your investment portfolio, individualization should be a good thing, right? Not always.
When you visit the doctor with flu-like symptoms, you expect a standard, proven approach. They’ll evaluate your symptoms, consider your medical history, and prescribe treatments that have consistently proven effective for countless patients. Similarly, while many investors desire a highly customized portfolio, the reality is that a diversified, multi-fund approach has a long track record of helping millions achieve their retirement goals. Seeking a completely novel, “custom” investment strategy is akin to your doctor offering an experimental flu treatment when established methods work reliably. Just as you trust proven medical practices, a well-established investment strategy offers a higher probability of consistent, long-term success.
Most professional portfolios are built in a certain way for a REASON. The funds or securities chosen to be included each have a specific purpose. So when an investment advisor mentions building a customized portfolio just for you, it sounds flattering, but should it be?
Two thoughts:
1.) If your investment advisor claims to be building a completely individualized portfolio just for you, this would take an extremely long time for the advisor to accomplish this for every single one of their clients. It is highly unlikely that any financial planner/advisor has the time, team, or technology to craft and track dozens of portfolios every year that fit within the framework of your financial plan.
2.) If your investment advisor claims to be building a completely individualized portfolio just for you, you are more at risk for errors in monitoring, trading, and bias. If you and the other hundred clients that an advisor has each have your own investment portfolio, whose portfolio does the advisor monitor more closely? When a change needs to be made, whose account is the advisor going to decide to update first? It could take weeks if not months for the advisor to truly adjust each account under their supervision. Or worse, they adjust the ‘custom’ portfolio quickly, because ‘custom’ was only a sales tactic from the start.
Investment managers often attempt to sell people on “individualized” portfolios, something that is proprietary or different from everyone else and specifically meant for you. While there is nothing wrong with slight customizations for personal preferences or financial planning tactics, having a completely unique portfolio is more likely to lead to underperformance and lack of awareness from your Investment Advisor.
As a fiduciary, we MUST put the best interest of clients first. That doesn’t stop at our compensation model, it applies to the way we manage portfolios as well. Every client we serve must be entitled to the same high level of service, monitoring, care, and attention as we provide to the rest of our clients. We manage portfolios using a model-based approach that allows us to monitor every portfolio under our management simultaneously and consistently. That means fair fiduciary treatment for every client across our firm.
While individualization is great for financial planning, it may not be for your portfolio. Be aware of the implications of what a fully individualized portfolio means for you as you shop for assistance with investment management.