Is Your Portfolio a Well-Planned Garden or a Sprawling Mess?

Several troubling signs that your financial advisor might be stuck in the weeds

A well-managed investment portfolio is like a beautiful garden: it may look simple and serene, yet it is the product of thoughtful planning as well as attentive maintenance. The difference is that all of us can see whether a garden is founded on good design, intelligently executed, while few of us know how to tell when an investment portfolio reflects careful planning.

At Blair Hall Advisors, we are constantly reviewing the work of other advisors, and we’ve noticed a few things a client can look for. If any of these common warning signs describes your advisor’s work, you might not be getting the financial advice you need. 

1)      Your advisor starts "digging up your yard" without analyzing what you really want to accomplish

Too many advisors will pick your entire portfolio on the basis of a few perfunctory questions about your “risk preferences.” Like many a high-volume “landscaping” service, they may ignore the specific contours of your property, its soil, light, and drainage. When they should be analyzing, planning, and discussing their blueprints with you, they’re already trucking in plants—investments—and spreading them around, just as they do for all their other clients who “prefer” the same level of risk. They may never tailor your portfolio to provide for the retirement lifestyle you really want, or take the time to understand how you wish to prepare for the other critical milestones of your life.

2)      There's no clear style or process

Imagine that the garden behind the Palace of Versailles in France abruptly switched from its formal, classical French form to a wilder, more “organic” English country style halfway through. Would that make any sense? Of course not! Yet we review portfolios all the time that could not possibly be the end product of a consistent style or process. And without a clear style and a disciplined process, the chances of success for the client are low.

3)      There are too many holdings

Like a novice landscape designer who runs amok with too many kinds of flowers, some advisors stuff dozens of different holdings into their clients’ accounts. Worst case, this could mean that your advisor is trying to make the portfolio impossible to understand. Even in the best case, a long list of holdings may indicate an advisor who has no point of view on which investments are best. Like a well-planned garden, a well thought-out portfolio should never include so many elements that they cannot be reviewed with a nonprofessional investor. We have seen statements 100 pages thick; no client should have to wade through that.

4)      Too many holdings are virtually the same

Imagine a garden planted with seven sub-varieties of acorn squash. How often would that make sense? Not very—unless your passion is the genetics of acorn squash! Yet here at Blair Hall Advisors we're often asked to examine portfolios that include three or four mutual funds intended to serve exactly the same purpose. For example, we recently reviewed a portfolio that included five different floating-rate fixed-income funds. Really? The advisor couldn't pick one or two favorites? Our assessment: Not a good sign. We don't know whether the advisor is lazy or lacks conviction or wants to hide their work. We just know there's no rationale that's positive for the client.

5)      Your advisor keeps large amounts of cash on hand without continually reviewing that tactic with you

Even if you and your advisor don't want to be deeply into equities just now, your advisor ought to have a good reason for not at least entrusting cash to a short-term bond fund. Blair Hall Advisors will sometimes carry significant cash—but not without "holding hands" with our clients. No conscientious gardener would leave you wondering why bulbs are left unplanted or a patch of land unattended to.

6)      Your advisor openly admits to sloth!

Some advisors are pretty shameless about admitting that they're essentially lazy. They tell you how they focus on asset allocation rather than investment selection "because asset allocation controls 70 percent of returns." What they're really saying is that neither you nor they should bother picking the investments. This is the most common sloth among advisors. They're trying to keep you from asking questions as pertinent as the ones you might ask your gardener, such as "What made you pick that sod supplier?" or "Why did you recommend the sprinkler system I just bought?" A lack of interest in investment selection is one of the best signs that you can find a better advisor elsewhere.

How does your portfolio measure up?

Did you take part in planning your “garden”? Did you approve the final blueprint? Does the reality match the design? Are the plants—we mean investments—showing signs of careful analysis and selection? Or is your advisor just trimming the hedges and mowing the lawn?

If you’re not certain that your portfolio garden is planned to address your goals in addition to your “preferences,” or that it’s measuring up to its potential, contact us. We would be glad to provide a complimentary review (some restrictions apply).

To learn more about Blair Hall Advisors, continue here.