Rebalancing Your Clients’ “Purpose Portfolio”
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One of the truly great things about our profession is that, if we’re doing our job correctly, we’re helping our clients accomplish what is most important to them: achieving their financial goals. Like many of my colleagues, I left the wirehouse environment precisely because I wanted to be able to do business in a way that put me on the same side of the desk with my clients: to always place their best interests foremost, rather than being forced into a business model that required me to generate commissions, whether or not that was what the client needed.
But even though my intentions were good, I still needed some time to adjust my mindset when working with clients. I didn’t fully realize this until one day, not long after I had made the move to fee-only work, when I was meeting with a client who had entrusted me with one of the first sizeable accounts I had acquired for my still-new advising business. I was talking about a mutual fund I wanted the client to add to her portfolio. I was telling her about historical rates of return, volatility, fees, and all the other reasons I believed this fund was a good fit.
At one point in my presentation, she looked at me and said, “Kimberly, you’ve given me a very good explanation of what this fund will do for my money. But I need to know what it will do for me.”
I had to take a moment to think about that. I realized that I had unwittingly – and probably from force of habit – gone back into “selling mode”: listing all the benefits of the product to convince my client to invest. But what she wanted to know was much broader and, I now realize, more important. She wanted to connect my portfolio recommendation with what was most important to her. Yes, the money mattered, but she was reminding me that the money was a means, not an end result.
I have replayed that exchange in my memory many times in the years since. Her words made me realize that, when working with clients, we should always proceed from what matters most to the client. Sometimes, it takes a little work to move the client beyond a focus on the money to what they want the money for. But when we make that move, we discover their real motivations, priorities, and core values. Once we build their investment and portfolio strategy on those foundations, it becomes much easier to help them stay disciplined, focused, and on track, no matter the phase of the market cycle. After all, this is the plan that we have agreed will get them to the places they have said they want to go. We’re just helping them along the way.
One of the ways I help clients discover these core goals is by having them write what I call a “retirement mission statement.” This helps me get at what I most want to achieve with each client: uncovering their foundational “why” and allowing that to drive the strategic, planning, and portfolio decisions to get there. I may ask a client, “What’s your bumper sticker?” I’m asking them to summarize what is most important to them, using only as many words as will fit on a bumper sticker. Whether it’s “Never stop learning,” or “Life’s too short to spend it all at home,” their bumper-sticker statement gives me an important clue about what they want to accomplish and why. My ultimate goal is to understand their purpose.
When I’ve uncovered these core values and priorities, I think of them as the clients’ “purpose portfolio”: the reasons they have the assets in the first place. And, just like a portfolio of assets, a portfolio of purposes requires rebalancing from time to time. Rather than being prompted primarily by market action, however, the “purpose portfolio” needs adjustment after major life events or other circumstances that shift a client’s underlying priorities, assumptions, and goals.
For example, my onboarding conversations with Kathy – not her real name – told me that this 60-something widow of the owner of a chain of successful car dealerships had a deep desire to secure her grandchildren’s college educations, a goal shared by many grandparents. On the other hand, she was dead set against becoming a financial or emotional burden for her three children as she entered her later years. This meant that our early portfolio strategy was focused on ensuring a durable, ample income stream, using the proceeds of her deceased husband’s life insurance and 401K, combined with spousal Social Security benefits. By prioritizing Kathy’s personal financial security and wellbeing, we didn’t have a lot left for college funding… Until, that is, successful sales of two of the car dealerships produced a large influx of cash. At that point, Kathy’s “purpose portfolio” needed to be rebalanced, bringing her grandchildren’s educations more to the fore. By understanding what was most important to Kathy from the beginning, I was able to help her maintain her most cherished priorities, rebalancing them in importance as circumstances dictated.
Charles – again, a pseudonym – presented a different set of goals. Having the benefit of generous pensions and savings from dual careers in the military and civil service, he was also the main support for his elderly mother. While his pensions provided for the majority of his income needs, Charles’s savings required careful consideration, as they would be what allowed him to take care of his mother in an appropriate manner. But Charles also had a deep interest in travel, born during his years of military service in various places around the world. About five years into retirement, his mother passed away peacefully, and soon thereafter, it was time to reassess Charles’s “purpose portfolio” regarding his financial resources. We established an asset mix for Charles’s savings that allowed for a reasonable amount of potential growth – and current funding that would help allow Charles to satisfy his longing to see more of the world.
Any number of life circumstances – births, deaths, divorces, marriages, new careers, purchase or sale of businesses, and even financial market events – can create a shift in the relative importance of the various goals, purposes, and priorities in our clients’ “purpose portfolios.” As trusted financial guides, we must understand these purposes and how they fit together in our clients’ lives. Then, we need to take the initiative with our clients when rebalancing is in order. Our clients depend on us to know why they are investing, not just how to handle their investments. When the “how” matches the “why,” we are doing our job as trusted, fiduciary advisors.
Kimberly Foss is a CERTIFIED FINANCIAL PLANNER™ professional at Mercer Advisors practicing in the Sacramento Valley area. The opinions expressed by the author are her own and are not intended to serve as specific financial, accounting, or tax advice. They reflect the judgment of the author as of the date of publication and are subject to change. Some of the content provided comes from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.