Custom Portfolios 101: How They’re Built

By Daniella Rand

Your life isn’t a carbon copy of your neighbor’s. Your careers, homes, hobbies, families — they’re not the same.

So, why should you settle for the same cookie-cutter investment portfolio?

You shouldn’t, and you don’t have to. Designing and building a custom investment portfolio aligned with your family’s unique financial goals, personal values, and long-term strategic plans has never been easier. 

Here’s what you should know about custom portfolios and the work that goes into constructing them.

What Is a Custom Investment Portfolio?

Just as it sounds, a custom investment portfolio is a bespoke basket of financial instruments tailored to the unique needs and objectives of its holder — the client.

Depending on the client’s needs and objectives, custom portfolios typically contain a finely tuned mix of market-traded securities (such as equities and exchange-traded funds), mutual funds, fixed-income instruments, cash and cash-equivalent instruments, and perhaps alternative investments. High net worth individuals’ portfolios may contain a wider range of non-traditional investments not available to retail investors.

“Custom” does not mean “static”:

 

“Capable wealth managers routinely rebalance and fine-tune custom portfolios in response to new information, such as clients’ life changes, shifts in clients’ financial position or risk tolerance, market movements, and component performance.” 

— Daniella Rand

 

Building a Custom Investment Portfolio: How It Typically Works

Every wealth management team operates a little differently. That’s why choosing the right team for your needs is so important.

That said, most fiduciary wealth managers — those sworn to act in the client’s best financial interests, rather than merely adhere to the lower “suitability” standard — follow this general procedural outline to design, build, and manage custom client portfolios:

  • Learning more about client objectives. The first step is listening — really listening. To build a truly customized portfolio that reflects’ clients needs and values, financial advisors need to know more about clients’ lives, finances, deeply held beliefs and goals, and more.
  • Assessing clients’ investor personalities. The next step is assessing clients’ personalities as investors, which may be very different from their public personalities. Risk tolerance is a major component of this step.
  • Choosing assets. Next, financial advisors choose assets and portfolio weights that reflect what they’ve learned about the client. Look for financial advisors who choose best-in-class instruments with relatively low fees.
  • Monitoring performance. The work doesn’t end when the portfolio is fully built out. Indeed, a custom portfolio is never “fully built out” — its composition will change over time as clients’ needs, objectives, and tolerance for risk changes.

You Deserve the Best

Investors today operate in a ruthlessly fee-conscious environment. For clients, this is a good thing — never before have retail investors and high net worth individuals alike had such a wide range of high-quality, low-cost instruments to choose from. Put another way, the annual cost of a custom portfolio comprised of “best in class” instruments has never been lower.

This isn’t to say that the overall caliber of the financial advice and wealth management services clients receive is better than ever. In fact, clients looking to forge long-term wealth management relationships must closely scrutinize prospective managers’ investment philosophy and approach, track record (including relative performance over time in up, down, and sideways markets), and value-added resources. Working with a wealth management team backed by the resources and expertise of a global financial powerhouse like Bank of America and Merrill Lynch provides clients with a slew of advantages — not to mention, peace of mind.

Ultimately, the choice is yours. Just remember that you deserve the best financial advice money can buy. You’re worth it.

 

Daniella Rand is managing director of The Rand Group, a wealth management team based in San Francisco serving high net worth clients throughout the United States.