Investment Management in a Consumer-Centric World

9 min read
August 06, 2018

Think about how you buy things today. How has that changed in the last year? What about the last three years, or five years? Do you know more or less about what you are buying? Do you care more about different aspects of your purchase than you did a few years ago? How much time did you spend researching the purchase?

I ask all of these questions to highlight and reassure you that your prospects and clients know more, expect more, and care about different things today than they did only a few years ago.

Buying a portfolio should be no different for clients.

So with that, I have a proposition for you:

STOP telling people how they should invest their money.

I’ll repeat: stop telling people how to invest their money.

Now, I didn’t say stop helping them. I said stop telling them. Too many advisors today are allowing their own personal bias to disrupt the investment management process, and consequently the financial planning process. I see this in all sorts of ways among advisors both in and outside of XYPN. Advisors do a tremendous job asking pertinent, relevant questions of their clients, understanding their values and goals, integrating those values and goals into an amazing plan, and then...

Here, take this quiz (because who doesn’t love taking a test?). Because you answered those questions that way, on this day, with recent history as your only guide, this is your portfolio.

Wait, what?!

Not even doctors tell you what you do anymore. And that’s not because they’re afraid of a lawsuit (well, maybe a little). It’s because research has shown that when the patient is involved in crafting their care plan, it is much more successful than when a doctor simply prescribes the plan without patient input. And no, taking a client through a risk tolerance questionnaire doesn’t count.

So why not involve our clients in the investment management process as much as we involve them in the planning process? With that in mind, let’s explore how you can be more consumer-centric in your investment management process.

Smarter Consumers Must Be Guided, Not Told

Today’s prospects and clients are coming armed with better questions than they ever have before. They’re able to find exactly what they’re looking for...after all, they found you (niche matters!).

Celebrate this!

Let your prospects and clients know how thoughtful and welcomed their questions are. And remember that although today’s consumers want answers to their questions, they don’t necessarily want to be told what to do. They want to be part of the process, to have input, to have a say. As a financial advisor, your job is to provide the information they need to make a decision, and guide them to that decision (not make it for them).

To do this, you need a decision framework that considers what is most important to your prospects and clients.

It Starts With Allocation

The best way to guide clients to a great decision is to start with the holistic plan and move from there. Ask your clients what it is they value and where it is they want to go. Your job is to guide them to the decisions that will get them there. From a purely investment perspective, the financial plan establishes the allocation or return expectation needed to accomplish what we want. Essentially, it’s the risk capacity for the portfolio. It’s critical that we get this step correct.

Pro Tip: Far and away, the best way to engage clients in both the planning and investment process is to let them drive the process.


Give them the mouse and let them build their plan.

Here’s how you do it. Prior to your meeting, have the basic aspects of the plan integrated into whatever application you use (RightCapital, MoneyGuide Pro, eMoney, etc…). Based on your initial discussions, have a couple of scenarios built in. Next, start a discussion around what the clients can “control” or “drive.” These factors typically include how much they spend, how much they save, timing (i.e. when they want things to happen), what they want to leave behind or have as a safety net, and lastly, the risk of the portfolio (in the form of allocation).

Depending on which of these factors the clients “drive” up or down, that sets the plan and establishes the capacity for risk.

In almost no scenario is allocation the primary driver of success in the plan. Spending, saving, and timing will almost always have a greater impact on the plan than allocation. Consider that the next time your clients (or you!) are agonizing over your portfolios.

Connecting the Plan to the Portfolio

Now we have to find a way to connect the plan with the portfolio. For most advisors, this means taking that allocation and putting it into a portfolio that follows the advisor's personal investment management belief system. These are the tenants that we, as advisors, have learned over time.

While it’s important to have conviction around what you believe, clients care much less about it than you do. Of course they care about your overall philosophy, but they don’t necessarily care about every nut and bolt. I see so many advisors placing way too much emphasis on their personal philosophy rather than focusing on connecting the client to the portfolio.

Two things happen when you place too much emphasis on your philosophy and portfolios:

  1. The client doesn’t have any ownership in the decision-making process
  2. When things don’t go as planned, it’s entirely your fault

To get this right with clients, we need to connect our clients to their portfolio the same way we connect them to their financial plan, and they to be able to drive the process. Our clients need ownership!  

Connect the Portfolio to Education

I speak to advisors nearly every day. Almost unanimously, every single one focuses part of their process and value to clients around education. But too often advisors focus on the wrong education around portfolios. Again, it gets too granular. They want to focus on things like statistics, performance, and factor tilts, all of which are typically completely out of our control.

I previously wrote about the similarities between personal training and financial life management. Now, think about how you would go about selecting (or “buying”) personal training services. Presumably, you don’t have an understanding of what exercises are best suited to your specific body type, metabolism, flexibility, etc… That’s what the trainer should know, and frankly you don’t care too much. What you do want know is, “How can I get my body to look like this with only this much time, or without having to run on a treadmill, or while maintaining my current eating habits.”

So how can you take the same approach as an advisor? Think about the questions and values most of your clients come to you with. They most often will fall into one of these categories (all of which you have some level of control over):

  • Cost
  • Cause/Purpose
  • Taxes
  • Simplicity
  • Protection
  • Coordination
  • Performance

Now, let’s play a game of “Would You Rather?”:

Would you rather have the lowest cost portfolio, or a portfolio that matches your personal values and causes?

Client answer: Cause

Would you rather have a portfolio that matches your personal values and causes, or something that is highly tax-managed and efficient?

Client answer: Cause

Would you rather have the lowest cost portfolio, or something that is highly tax-managed and efficient?

Client answer: Cost

This is just a sample of factors and questions, but you get the idea. Based on the clients answers of “cause”, “cause”, and “cost”, taxes are either not a concern or don’t really matter that much to the client. And, while taxes are always important, in this case you should focus much more attention on crafting a portfolio that reflects the “cause” and “cost” factors. Perhaps something with a socially responsible (SRI) or ESG overlay.

Does cost of the portfolio matter? Of course. But in this case a simple explanation of how SRI portfolios have slightly higher expense ratios or cost than those that don’t should help make the client feel good about how they are investing. If they say, “Oh well I didn’t realize that was the case,” this becomes a great education opportunity whereby the client is owning that decision, not the advisor.  

And what an education opportunity this is because you can’t have all these things in a singular portfolio. There is no such thing as the most cost-efficient, tax-managed, downside-protected, outperforming portfolio with an SRI values overlay that coordinates with outside assets or strategies.

Now who’s in the driver’s seat?

By allowing clients to participate more and own these decisions, you help your clients understand what their portfolio is designed to do and, if the portfolio is connected to the plan, its purpose.

Personalize, Don’t Customize

Now you would think in order to accomplish all of this, you would need an array of strategies, multitudes of models, and insane customization features. You don’t. At XY Investment Solutions (XYIS), we can do all of these things with the exception of protection, and we only have six models (with varying allocation). We could probably claim protection with diversification, but in this instance, I’m referring to something like a tactical strategy that protected/scaled to cash in down markets. We don’t have that.

Think about your portfolios like NikeID. You don’t get to design a shoe. You get to personalize a shoe based on an already great Nike design. Some you can personalize more than others.

It’s the same with a client portfolio. Don’t create custom portfolios for every client. Instead, use tools and technology that allow personalization. TAMPs like XYIS and tools like iRebal allow you to quickly personalize portfolios without creating completely new portfolios every time.

Another great example is what Tesla has done with their Model 3. It’s not a customized car, it’s personalized. You basically get to choose the color and the wheels. Tesla has taken care of everything else. There are a couple more options like front- or rear-wheel drive and software upgrades like auto-pilot, but that’s it. On a $50,000-$70,000 car!

The key? Personalize...don’t customize.

To Recap

  1. Start with the allocation, which comes from a sound holistic plan
  2. Risk capacity rules, risk tolerance drools
  3. Connect the plan to the portfolio by allowing the client to drive the process—give them ownership!
  4. While they’re driving, educate them on factors they actually care about
  5. Personalize, don’t customize

You don’t want your clients' biases affecting their judgement, so don’t let the same happen to you. The financial plan and other factors like saving, spending, and timing are almost always going to have a greater effect on our clients’ outcomes than what we do in their portfolios. Add value there and check your personal investing biases at the door. And, above all else, stop telling people how to invest their money!


About the Author

A creative innovator and collaborator, Brandon Moss has had a front-row seat to the digital advice revolution, helping build one of the most innovative national RIAs on the planet. He’s acquired a 360* view of the RIA landscape, from being an advisor and running his own firm to designing and integrating some of the most innovative tools in the industry. He has lead, trained, coached, onboarded, integrated, transitioned, (you name it) over 100 RIA firms/wealth management teams. Additionally, he's evaluated, prospected, pitched ( name it) countless other firms. Consequently, he's an exceptional listener and comfortable in many different conversations! Occasionally, he's asked to opine on varying topics, typically Gen X+Y, innovation, client experience and technology. Beyond those topics, he's typically “winging it”. Brandon graduated from Texas Tech University's globally recognized personal financial planning program, then made it through some Executive Education at UC Berkeley's Haas School of Business. He’s also perpetually in online classes trying to figure out something new. Brandon resides in the Dallas/Ft. Worth area with his wife, Shelby, and his identical, mirror-image twin boys, Will and Reese. When he's not with them, he's probably in his garage tinkering, building, or buying way too much golf equipment.

Brandon is the Director of XY Investment Solutions (XYIS), XY Planning Network’s digital hybrid investment platform. It’s a turnkey asset management platform (TAMP) designed and curated to the specific needs of XYPN members.

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