Why reviewing is important
With many demands on their time, clients may not think it is necessary to sit down with their adviser and review their portfolio. But a regular investment 'health check' is important to ensure they remain on track to meet their financial goals. Not only does a meeting enable you to review the performance of a portfolio, but it also offers an opportunity to connect with your clients and see if anything has changed in their lives that affects their investment needs. A regular review can also be a powerful way to engage your clients and demonstrate the value of your services. The start of the year is often a good time to initiate a review meeting, as many people naturally use this period to plan for the year ahead.
Reassess goals
A client's financial goals should be the driving force of portfolio construction, so a good starting point for any review is to assess whether these goals have changed since you last met. For example, the birth of a child or grandchild may mean they now want to focus on building up an education fund. Alternatively, a recent illness may mean they are considering bringing forward their retirement. Even if their overall goals have not changed, the priority of these goals may have shifted. This type of discussion is not only important to ensure their investments continue to meet their needs, but it is also a good way to help your client feel listened to and an opportunity for you to respond to any concerns they may have.
Once you have identified whether their goals have changed, the next step is to look at whether their current portfolio is on track to meet them, or if tweaks are needed, such as different asset allocation or higher contributions. Even if investment returns have not been as good as expected during the past year, it will help boosting clients' confidence to see they are still on target for their long-term goals, or to have a plan in place to improve the situation if they are not.
Attitude to risk
As well as looking at whether clients' goals have changed since you last met, it is also important to assess whether their risk appetite remains the same, as this factor has a big impact on the suitability of their current asset allocation. People's risk appetite may change as a result of events, such as stock market crash, while it may also shift as they get closer to reaching their overall goals. For example, people are likely to have a very different risk appetite when they are within five years of retirement, compared with when it is 25 years away. A review is a great opportunity to reassess risk appetite, and adjust a clients' portfolio accordingly.
Responding to change
Even if your clients' goals have not changed, economic backdrop may have been altered, and you may have to adapt their portfolio to take this into account. External factors, such as the slowdown in China, US rate hike and the falling oil price may mean that what was a good investment sector two years ago, no longer looks so promising. Meanwhile, other geopolitical or economic changes may help creating new investment opportunities.
It is also important to review the overall asset allocation to ensure the portfolio remains balanced. If some investments have performed better than others, you may find your client's portfolio is no longer in line with their preferred asset allocation. By talking your clients through this process, you can help them understand that their portfolio is not static, but something that needs to evolve in response to external factors.
Know your stuff
Given that a key part of any review is to help your client adapt their portfolio to the changing economic outlook, it is important that you bring them up to speed with what has changed since you last met. With this in mind, it can help to put together a short presentation on what has happened to markets and economies during the past year, as well as the outlook going forward. This strategy will help you explain to clients why they may need to make changes to their portfolio. If their investments have not performed as well as they had hoped, it will also help them to understand why this is the case. Ensuring your client is informed about why it is necessary to make changes will help them understand that you are not altering their portfolio just for the sake of it, or, worse, because you got it wrong previously. It can also be helpful to compare the performance of their portfolio against key benchmarks.
How often should you review?
The frequency with which you review your clients' portfolio is likely to vary according to the complexity of their needs, as well as their own personal preferences. But even if your client is happy with the way their portfolio is performing, it is still a good idea to review it at least once a year. Not only is this an opportunity to educate your client, but it also builds confidence and trust in their relationship with you.
