Seeing the Whole Picture
We helped a client take a coordinated approach to her investments for the first time—and make some important changes.
When Arlene* met with us to discuss an investment strategy for her $5 million portfolio, we began by asking her a series of questions about her near- and long-term goals, her appetite for risk, and her current investments. It soon became clear that Arlene’s strategy thus far had been to designate separate portions of her total investment portfolio to meet different goals, and she was not looking or thinking about these component pieces as a whole.
When we asked for documentation around Arlene’s existing investments we were presented with several folders full of statements from a number of different firms. Roughly $2 million of her assets were with one manager, another $2 million with a second, and the remaining $1 million spread around in small pieces at a number of smaller firms. As we took a closer look at her underlying investments with these various managers, the picture that came into view was a disjointed one.
Arlene believed she was pretty well diversified due to the number of different mutual funds, managers and individual stock positions in which she was invested. But on an aggregate basis, in fact she was not. Our analysis of Arlene’s investments at the total portfolio level revealed concentrated positions in a few individual equities and sectors and little to no exposure to certain sectors and geographies.
We also pointed out to Arlene the importance of looking at her returns after taking taxes into consideration. With a heavy reliance on active managers across her portfolio, Arlene’s investments had experienced high turnover levels, resulting in realized capital gains that eroded her bottom-line results. We pointed out that the lack of coordination among her investments could also be damaging to Arlene from a tax standpoint. For example, if one of her managers sold a security to take a tax loss, another could be buying that same security in a different one of her accounts, triggering the wash sale provision that would not allow her to book those losses.
We agreed to help Arlene structure an appropriate total portfolio that would eliminate some of these disconnects and duplications, add more quantitatively managed, structured core investments to the mix, and offer her the potential for better post-tax returns. We took over a portion of her assets to manage internally and continued to play a consultative role in overseeing the other components of her portfolio and coordinating with her accountant, attorney, and other trusted advisors to ensure an integrated strategy that would put Arlene on the right path toward her financial goals.
* Names and some details have been changed to protect client confidentiality. Each investor’s situation can differ based on his or her unique needs and objectives.