Most of us, at one time or another, enjoy passing the time people watching. Something that probably stands out to us while engaged in this pastime is the very wide variation among individuals – unless you are watching the Smurfs, there are an incredible number of variations to see. And as you look at these folks, you will understand that even if you put them all in the same mode of dress such as a white shirt and black pants (or any other combination of clothing) one size of that clothing really could not fit all the different folks you see.
Most definitions of the term "fit" used in the context of how something – in our example clothing – works with a particular individual have the goal of the item being just right for each individual. In our example, that would mean not too tight and not too loose, not too long and not too short, etc. Turning to our primary area of concern, investment advice and financial planning for clients, one should understand the application of the statement one size does not fit all. With the growing emphasis on serving clients’ best interests, it seems very clear that the particular mix of investments recommended for each client should be tailored to that client’s personal situation and needs. Necessarily, what an advisor recommends cannot be the same for all clients if that advisor also claims to be a fiduciary working in the best interests of those clients.
How is it then that we continually run into “advisors” who have all of their clients in the exact same portfolio? These advisors claim that they work very hard to create and maintain the portfolio(s) they recommend and although that may be so, it still begs the question of how those special portfolios actually work for so many different situations. Even more confusing is where the creation of those “special” portfolios result in clients owning a few shares of this and a few shares of that so that their holdings mirror exactly the percentages of the special portfolio. How can that be in the best interest of a client who needs to raise cash for a goal and who will be subjected to multiple small transactions some of which will likely be inefficient and costly if not impossible to execute timely?
So if your advisor touts his or her special group of portfolio allocations, ask how many of the clients are in each of these portfolios and how much variation there is between clients. The answer will tell you whether the portfolios are in the best interests of the client – and the client’s own particular situation – or something else.