Is Your Financial Advisor Wearing Too Many Hats?



 

Is your financial advisor a member of a team? Does their team consist of a planner and/or an investment expert?  Or is he or she on their own? If so, do they claim to be an expert in multiple planning areas or disciplines (investments, estate planning, insurance, etc.)?

Financial advisors are placing more and more of an emphasis on financial planning these days.  It is a shift (and increasingly a reality) that has occurred throughout the last 20 or so years whereby “brokers” with “the latest and greatest stock picks” are gradually becoming a thing of the past, while advisors are spending more and more time talking about everything but stocks and bonds. Make no mistake, this shift is a good thing as advisors typically aren’t having to worry as much about the direction of a particular stock or bond and can therefore spend more time asking questions and developing personalized solutions.

Advisors are building out retirement models to give their clients a better idea as to what a reasonable retirement lifestyle might look like. They’re sifting through estate planning documents to identify potential pitfalls down the line and identifying risks and addressing them with the appropriate types and amounts of insurance. They’re collaborating with their clients’ accountants to ensure the effects of tax reform are not overlooked. All of these aspects of their clients’ financial well-being may very well have been overlooked in the past, and if not addressed at all they could have developed into big problems.

Hopefully, you are having similar conversations with your advisor. But if that’s the case, and your advisor has dozens (if not hundreds) of clients just like you – and also sits down with them (or connects for a call) on a quarterly or semiannual basis – who then is overseeing your investments and making sure they’re properly accounted for? Hopefully, your advisor is part of a team that consists of a Chief Investment Officer (CIO) whose primary responsibility is the oversight of client accounts and portfolios.

A CIO should have minimal day-to-day client-facing responsibilities. Their primary role should revolve around the development and implementation of solutions, as well as the monitoring of performance, within client portfolios. This entails not only identifying potential investments, but also selecting investments with the best anticipated risk-adjusted returns that are properly aligned with clients’ appetites for risks, as well as their goals and objectives.

Different CIOs will obviously have different responsibilities depending upon the investment philosophy of their firms. The CIO of a firm that favors passive investing will likely spend most of their time identifying macroeconomic trends and adjusting allocations for varying degrees of risk tolerance. The CIO of a firm who adheres to more of an active investment management philosophy will likely be tasked with trying to identify stocks, mutual funds, etc., that will “outperform the market” throughout the next 3-5 years, in addition to determining the appropriate investment allocations for varying degrees of risk tolerance. Neither objective is necessarily right or wrong, but both certainly deserve a significant amount of attention.

CIOs are also responsible for encouraging dialogue amongst the decisionmakers within a firm. The CIO usually oversees a firm’s investment committee, in which courses of action are contemplated and debated amongst the CIO, analysts, advisors, etc. For instance, the CIO may recommend his or her firm allocate more of their clients’ stock exposure to emerging markets (China, India, Brazil, etc.) equities. He or she may have come to this conclusion in the anticipation of emerging markets equities outperforming developed markets (France, Japan, Australia, etc.) and/or domestic (U.S.) equities on a going-forward basis. Well, then it becomes the investment committee’s job to discuss the opportunities and threats associated with such a move, and to eventually come to some sort of conclusion. More than anything, the idea here is that while the CIO wields a lot of influence, decisions should probably be agreed upon by a majority of the members comprising an investment committee.

Investment analysis requires a lot of time, and oftentimes entails listening to companies’ quarterly earnings conference calls, reading 3rd party research reports, monitoring economic news, etc. The odds are, 70-80% of the time, your financial advisor is:

•    Preparing for a client meeting or a call

•    Participating in a client meeting or a call

•    Following up on a client meeting or a call

The other 20-30% of their time is spent doing a handful of other things, including trying to obtain new clients like you. Do you remember when you were a new client? Do you remember how many times you sat down with your new advisor throughout the first six or nine months of your engagement? Well, you probably weren’t their only new client that year. Were you 1 of 5?  1 of 15?  1 of 30?  Is it realistic to expect they had just as many interactions with the other new clients?  Probably, right? So, if an advisor spends so much of his or her time doing all of the above, how can they possibly be spending an appropriate amount of time developing and implementing solutions, and monitoring performance, within client portfolios?

Again, the shift toward more of an emphasis on planning should benefit clients (consumers) over time. With this shift, though, comes a burden on advisors that perhaps didn’t always exist – a burden that entails spending more time on their clients’ estate plans and college savings models, and less time on determining whether AT&T or Verizon is a better “buy.”  Those kinds of decisions are best left to a CIO, whose primary responsibility is to oversee client accounts and portfolios. 

 

The Certified Financial Planner (CFP®) are professional certification marks granted in the United States by Certified Financial Planner Board of Standards, Inc. (“CFP ® Board”). To attain the right to use the CFP® marks, an individual must satisfactorily fulfill the following requirements: 1) complete an advanced college-level course of study addressing financial planning subject areas and attain a Bachelor’s Degree from a regionally accredited United States college or university; 2) pass the CFP® Certification Examination; 3) have at least three years of full-time financial planning-related experience; and 4) agree to be bound by CFP® Board’s Standards of Professional Conduct, outlining the ethical and practice standards for CFP® professionals. Individuals must complete 30 hours of continuing education every two years, including two hours on the Code of Ethics, to maintain competence and keep up with developments in the field. Individuals must also renew an agreement to be bound by the Standard of Professional Conduct.

The Chartered Financial Analyst charter is a globally-respected, graduate-level investment credential established in 1962 and awarded by CFA Institute — the largest global association of investment professionals. There are currently more than 90,000 holders of the CFA charter working in 134 countries. To earn the CFA charter, candidates must: 1) pass three sequential, six-hour examinations; 2) have at least four years of qualified professional investment experience; 3) join CFA Institute as members; and 4) commit to abide by, and annually re-affirm, their adherence to the CFA Institute Code of Ethics and Standards of Professional Conduct.

 

Chris, a principal, and Neil, the chief investment officer, with John D. Dovich & Associates, LLC, can be reached at 513.579.9400 or by email at chris@jdovich.com or neil@jdovich.com.

John D. Dovich & Associates, LLC is located at 625 Eden Park Drive, Suite 310, Cincinnati, OH 45202. For more information, call 513.579.9400 or visit www.jdovich.com. John D. Dovich & Associates is a Federally Registered Investment Adviser.  Registration as an investment adviser does not imply a certain level of skill or training.  The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser.  Information within this material is not intended to be used as a primary basis for investment decisions.  It should also not be construed as advice meeting the particular investment needs of any investor. Past performance is not indicative of future results. This is prepared for informational purposes only. It does not address specific investment objectives nor is the content intended as an offer or solicitation for the purchase or sale of any security.