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Posted: February 03, 2010

Your investment adviser: consultant or advocate?

Understanding your needs is the key to great results

John Trujillo

Recent market activity has forced individuals to closely examine their investment strategies. Not only has the volatility provided an opportunity for people to evaluate how much risk they can withstand, it has also reminded them that financial health must be constantly assessed. However, another important question that must also be asked is how well does their financial adviser know their unique circumstances?

Wealth management has become more than just allocation and prudent equity selection. Today's high-net-worth client is starting to understand that the closer the adviser relationship, the more timely and effective his service and portfolio management. With complex issues like wealth management in a volatile market, a close relationship will produce better returns, because the adviser truly understands the needs of his client. The adviser transitions from being a wealth consultant to a wealth advocate.

There are three characteristics to evaluate when selecting an advocatory investment adviser-effective listening, account approach and nimble and proactive allocation.

First, an adviser may make imprudent investments if he doesn't carefully listen to the client's story. Having a thorough understanding of the client's goals, beliefs and circumstances is paramount when creating a customized plan. This includes family dynamics, legacy ideas and charitable interests, among others. As with many things, success is in the details.

Who controls the wealth and how does that control affect relationships within the family? How does the client wish to preserve and pass on wealth generationally? Is there a charity the client wishes to support and to what magnitude? A wealth advocate must understand exactly how a client would like their wealth distributed so they can provide strategic and well thought-out advice.

Second, having a customized team of experts focused on the client's wealth is instrumental in achieving desired outcomes. The team approach provides access to multiple professionals who understand client goals and can bring specific expertise to the person's overall financial wellbeing. Wealth management has become so multifaceted that the effective use of many people has become necessary to provide the specialized service now required with complex planning.

Primarily, a team approach ensures numerous people understand and are engaged in what is happening with the client's wealth. This allows each team member to specialize in a specific field like planning, portfolio management or legal issues to name a few. In contrast, having a single individual tasked to be an expert in multiple fields carries certain risks that may limit the client's ability to reach financial goals.

Finally, asset allocation must be forward-looking and nimble in order to react to this fast-paced environment of information transfer and the ever-increasing global market. Active management ensures a portfolio is taking advantage of the most current economic data available and projecting where returns are likely to be found in the future. History can be a useful indicator, but if a wealth manager is solely making decisions through a rear view mirror approach, he will undoubtedly miss what is occurring right in front of him.

Asset allocation must also be customized in order to maximize client return. Unfortunately, the pressure for some wealth managers to hit corporate earnings has caused them to instutionalize private money management. "Customization" in some of these cases merely means that all client accounts with similar allocations are traded together. This is clearly not the most advantageous or strategic approach for asset allocation. Individuals should conduct careful due diligence to avoid this scenario.

During a lifetime, the investment adviser relationship is one of the most important and impactful business partnerships an individual will have. As such, selecting the ideal adviser should be made with great consideration as to who best understands unique wealth management needs and will serve as an advocate in making financial dreams a reality. 

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John Trujillo is SVP, Senior Portfolio Manager of UMB Private Wealth Management in Denver. John may be contacted via email at john.trujillo@umb.com.

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