Want more time? Trim client investment options

Advisers have hundreds of funds in client portfolios, research shows, an onerous amount that saps efficiency

Jun 12, 2015 @ 10:55 am

By Liz Skinner

Financial advisers looking to make their businesses more efficient should examine how many different investment products they're using with clients — and consider paring down.

On average, advisers are using between 200 and 300 different mutual funds in their clients' portfolios, according to Russell Investments research.

Given that it takes between six and eight hours to conduct the detailed due diligence that advisers should be doing for each investment, and that advisers have to keep current on all the ones they use, that's a lot of time advisers could otherwise be spending with clients, said Sam Ushio, director of practice management for Russell Investments.

“The right number of investments will be different for every adviser, but this is an area advisers should look to for increasing efficiency,” he said.

(More: Keep clients for the long haul by bolstering risk assessment procedures)

Shawn Perry, an adviser with Hilliard Lyons, said his team of nine people cut 50-to-100 investments out of their lineup six years ago.

Now most of the firm's 600 client households own one or two portfolios that it manages, and each of those includes up to a dozen funds.

“We can monitor closely what clients own across the board, and it allows us to help them with their real issues,” Mr. Perry said.

He named two reasons why the number of investments within client portfolios can explode if advisers don't actively avoid it, he said.

First, sometimes clients sign on with a new adviser and demand to retain certain holdings. Second, the regular stream of investment company representatives pitching their latest offerings can be challenging to ignore.

“Advisers who aren't disciplined can decide to go with the hot thing they just heard about and they start to add up,” Mr. Perry said. “We have a diligent process for what we recommend.”

(More: Fund family with 25% women managers far exceeds industry average)

Mr. Ushio calls it “inventory control,” and his firm has developed a tool that helps advisers quickly evaluate whether they are including too many different choices within certain categories of funds.

For example, an adviser may have clients invested in 15 different funds within the emerging markets sector, but 80% of those dollars are held in three particular funds. It probably makes sense for the adviser to eliminate some of the other dozen funds and concentrate on making sure those three funds are operating as expected, he said.

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