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Insights: The Secrets of Elite Investment Advisors

The Secrets of Elite Investment Advisors

How they grow their businesses and their clients’ wealth

Barron’s names an elite group of 1,200 wealth advisors as the nation’s best each year. These rankings are based on “assets under management (AUM), revenues generated by advisors for their firms, and the quality of the advisors’ practices.”

Surprisingly, Barron’s specifically states that “investment performance is not an explicit criterion.” However, it’s very likely that performance is the most important thing to each one of these advisors’ clients.

So, how can these advisors be the nation’s best when they’re not evaluated on investment performance?  

They’ve all put behaviors into practice that put their clients first—ones that don’t just search blindly for performance, but aim to truly achieve balance.

Here’s how they do it.

Align interests

Wealthy clients hire investment professionals for two main reasons:

  1. To help them reach their financial goals
  2. To pay an expert to worry about their money so they don’t have to

In fact, for most clients, performance really means feeling safe, secure and in control of their financial future.

Unfortunately, since there are so many options for clients to manage their wealth, advisors easily fall into a trap of defining performance as the financial media does: beating the stock market. By framing their relationship this way, advisors often end up chasing performance in attempt to get their clients’ portfolios to outperform the market. This can create misaligned expectations between advisors and their clients, leading to emotional decisions and unbalanced portfolios over time.   

Elite advisors align expectations about short-term wants for long-term needs. That way, their clients won’t worry about their investments or their advisor’s ability to manage them.

Get emotional

Knowledge and expertise are essential parts of the value elite advisors provide to clients. Most advisors already display that knowledge when coaching them on the asset classes and different types of risk that best diversify a portfolio. Plus, identifying the correct asset allocation for a client’s investment goals is an important way to continue to avoid those misaligned expectations.

Elite advisors create even more value: they educate clients about the emotional journey a balanced portfolio creates. They know that it is vital to discuss the touchy subjects: the emotional costs of a balanced portfolio and the common traps (greed and fear) that advisors are there to help their clients avoid. This knowledge can help clients feel more secure in their investment choices and allows them to both identify and overcome the traps that may hinder their investment success—both on their own and as guided by their advisor.

Without this understanding, investors’ results are likely to disappoint no matter how well an advisor constructs their portfolio.

Diversify risks

Once advisors identify their clients’ investment goals and educate them on the process, elite status grows when they can start reducing their worry by diversifying their portfolio risks.

Although clients might want to diversify on performance, elite advisors know their objective should be to balance their portfolio as well as possible using investments that all provide a real rate of return. The easiest way to reduce clients’ fear about this approach is by maximizing portfolio diversification – not just for diversification’s sake, but to provide the safety and security most investors want from advisor-constructed portfolios. For most investors’ goals, that will include an allocation to stocks, bonds and true diversifiers, the three parts of an effective portfolio team.

Elite advisors remind them that “don’t put all of your eggs into one basket” is about risk, not performance. That time-tested strategy can minimize losses while reducing client worry.

Buy low, sell high

With a properly diversified portfolio, elite advisors can monitor and review each selected investment to ensure it is still diversifying risk and providing a real rate of return. In effect, they assume responsibility for the day-to-day worrying so their clients don’t have to. They do the quiet, but crucial, work of rebalancing portfolio allocations to put earnings to work while deconcentrating risk.

Elite advisors encourage clients to follow this disciplined “buy low and sell high” strategy at least once a year to help them overcome their natural instincts to chase performance. Instead of yelling about poor performance, clients of elite advisors learn to see quality asset classes in underperforming years as a buying opportunity with a delightful discount. Most importantly, they will understand that it is a more balanced and secure path to their financial goals.

Grow the business

Because they’ve managed expectations, diversified portfolios and rebalance to maximize returns, elite advisors have more time to focus on growing their businesses. Why? Their clients are happier! So, elite advisors are able to focus their time and energy in a more proactive, and therefore productive, manner with clients—instead of always being reactive and on the defensive with each other.

Not only will clients be more confident that they will reach their investment goals based on the knowledge and expertise of their elite advisor, they will likely see the results in their statements. Elite advisors are consistent in their approach and repeat this discipline with new clients.

New clients means higher AUM, more revenue and a higher quality practice in the eyes of clients, peers and competitors. Not to mention less stress, fewer panicky phone calls and happier clients.

By following the same path towards becoming the elite advisor that puts clients first, they might even make it into Barron’s.

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Alternative investments: strategies that produce returns by taking risk other than equity and bond risk.

Bond: A debt security that shows ownership in a corporation or represents a claim in the corporation assets and earnings.

Correlation: a statistical measure of how two securities move in relation to each other.

Long: Buying an asset such as a stock, commodity or currency, with the expectation that the asset will rise in value.

Short: Buying an asset such as a stock, commodity or currency, with the expectation that the asset will decrease in value.

Stock: A security that shows ownership in a corporation or represents a claim in the corporation assets and earnings.

True diversifiers: investment strategies that have historically provided investors with at least 70% of the return of the traditional 60/40 stocks and bonds portfolios while having less than .30 bear correlation to traditional 60/40 stocks and bonds portfolios.