Protecting client portfolios

By Alistair Kadrian, Business Development Manager, HALO Technologies

Making money safely for clients is at the heart of why every financial adviser does what they do. Protecting your clients’ portfolios takes understanding, effort and expertise. With years of experience under your belt, it can be all too easy to overcomplicate portfolio protection and overlook the fundamental financial components that go into protecting your clients’ portfolios.

Below, we provide a refresher on how you can help to create wealth for your clients without overexposing them to risk.

Clear objectives
For many advisers, uncovering a client’s objectives is second nature. Setting well-defined objectives is the very step in understanding how to help protect the portfolio. More than defining what the objective is, working with the client to unlock why they hold the objective can also provide invaluable information to help guide decision making and prioritisation of goals.

Looking at time frames is a hugely impactful consideration when setting goals. Investment time frame largely guides the portfolio that you’ll put in place, and you can assist with providing realistic expectations. An unrealistic client expectation with regard to returns or drawdown rates in retirement can lead advisers (and clients) to take on far too much risk for the client’s appetite.

Risk tolerance
Speaking of risk appetite, thorough risk profiling is absolutely critical in understanding how to protect a portfolio. If you have long-standing clients, it may be easy to rest on your understanding of their previous investment attitudes. However, significant life events, especially the COVID-19 pandemic, has seen many Australians reassess their priorities.

Many are now looking at striking a new balance between work and lifestyle, retiring earlier where possible, or potentially working longer than anticipated to recover from the financial impact of lockdowns. Financial security became a prominent antecedence to investment returns throughout the pandemic, which may now reflect in adjusted risk profiles for existing clients.

Ensuring that you gauge factors uncovered in client conversation (and not solely relying on a risk profile questionnaire) as well as remembering to regularly update your client’s risk profile can be a fundamental building block to guide the protection mechanisms you put in place for their portfolio.

Optimal asset classes
Once the risk appetite has been defined for your client, you’ll next move to select the optimal asset classes. Determining the most suitable blend between asset classes based on your client’s investment goals helps to weed out unnecessary exposure to volatile or return-dormant asset classes.

Strategic asset allocation (SAA)
From here, setting the allowable portfolio weight for each asset class becomes important. Licensees will generally have pre-determined SAA weightings for each risk profile. Balancing the risk and return trade-off that’s compatible with your client’s appetite for risk and in line with their investment goals is where your intellectual property and expertise are invaluable.

Rebalancing existing portfolios to reign in deviations from original asset allocations helps protect the portfolio and reinvest well-performing assets. Be mindful of automatic rebalancing, which can run the risk of crystallising poor-performing investments at inopportune times in a market downturn.

Risk management
Risk management strategies are naturally what most advisers immediately consider when discussing portfolio protection. Whether it’s ample diversification, dollar cost averaging, personal insurance, regular rebalancing or adopting a bucket strategy — managing longevity risk, market risk, inflation risk and sequencing risk are vital to protecting your clients’ portfolio.

Accessing the best investment technology to build robust portfolios
HALO Technologies understands the importance of building robust portfolios. Our world-leading investment technology and thematic share portfolios make investment selection more straight-forward than ever.

Reach out to learn about how your practice can access institutional-grade signals, broker recommendations and EPS revision from the world’s largest research firms with HALO Technologies.

This article is general information and does not consider the circumstances of any investor or constitute advice. No fund or stock mentioned in this article constitutes an offer or inducement to enter into any investment activity.