Portfolio Review: A Value-added service to retain Clients & the Advisors Revenue

To sustain and grow in any business, retention of existing clients (especially your top 20% which generate approx. 80% of your revenue) is critical. Apart from the retention of a client, for an Advisor, the market movements also impact his Assets under Management (AUM) & thereby his revenues.

From an Advisor, the client seeks value-addition to his life by assistance in better management of his Finances to protect the current investments, grow them, deploy the surplus efficiently and also achieve his goals.

As Advisors, we gather information about our Client to process and layout either a detailed Financial Plan or a strategy to achieve a certain Goal or a strategy to manage their wealth and finally execute the Financial Plan or the respective strategies.

The information collected is about the current investments or their future surplus generation, their goals or utilisation of the wealth, their Risk Tolerance, etc. while the processing part involves the Advisor’s Philosophical framework for preparing suitable strategies right from Asset Allocation at every stage, products to be used, Categories and / or final level scheme selection.

The most important part is to execute the strategies laid out Year-on-Year, which will provide the value-addition sought by the client and thereby allow him to stay with us.

Over the period, the financial plan / strategy will involve more of wealth management where there are hardly any changes in goals or overall lifestyle of the client, irrespective of the market situation.

As an Advisor, sticking to the planned strategies becomes very important to showcase our value-addition to the client. This can be achieved by doing a regular Portfolio Review.

The Portfolio Review will involve changes due to the client’s conditions as well as the changes caused by the overall market conditions.

Currently focussing only on the changes caused due to market conditions, the Portfolio Review needs to be done at the Overall Asset Allocation, Product level allocation & Category and / or Scheme level allocation. The deviations caused at each level need to be corrected to stay aligned to the planned strategies prepared at the start.

The client always perceives some action in the portfolio as value-add from the advisor, which may not a true value-add. However, if this action comes in the form of a Portfolio Review with a proper process of keeping the portfolio aligned to the planned strategy irrespective of the overall market conditions, it will be a true value-addition to the client’s portfolio.

As the quote in the financial world goes “Buy Low, Sell High”, how does one make it happen? To bring it in practice, Portfolio Review can do the work just by sticking to the planned strategy and aligning the portfolio regularly for the deviations caused by the market.

A portfolio containing Debt & Equity MFs as the only products & with the equity market outperformance has got the Equity MFs values higher than the required allocation to be held. The Sell High part comes into picture which can be acted by reducing the Equity MFs holding to bring it to the desired level & hence providing partial profit booking. This will lead to possible partial loss of future growth of the Equity MFs value and also to Advisor’s revenue linked to it. However, in case of a fall from that point, the action will also reduce the downfall in the portfolio value as well as the Advisor’s revenue.

The other part i.e. Buy Low will happen when the Equity MFs values have been beaten up due to the fall in the equity markets, which needs the Debt MFs to be shifted to Equity MFs at an overall asset allocation level. This would provide the participation of higher Equity MFs units in the possible rally and provide better performance in future. The action could lead to an upside in the portfolio values & the Advisor’s revenue.

But as an Advisor, when we take up the action of Portfolio Review on a Portfolio of few Debt & Equity funds across various available category to build the suitable portfolio required to achieve the desired end result, the action would also require us to look at not only the Overall Asset Allocation at the Debt-Equity but also at the category within each asset class before looking at the schemes & their performance or even at the no. of schemes & AMC level allocation.

This in-depth review will help us showcase & provide the true value-addition to the client, retain him for life & also the current and future revenues of our practice.