Should You or Your Family Be Considering a Personalized Portfolio Management Solution?
Each investor has different needs and objectives at various stages of their financial life. The complexity of these needs and objectives is compounded by the increasing responsibility that comes with greater wealth. A personalized portfolio management solution provides the optimal approach to address a high-net-worth investor’s evolving financial circumstances and the unanticipated challenges that may arise.
Portfolio Management: A Little History
Portfolio management (investing in an aggregated bundle of securities or investments) has been around in one form or another since the 1600s. It wasn’t until 1952 that the benefits of investment diversification were quantified in Harry Markowitz’s paper “Portfolio Selection,” which provided the foundation for Modern Portfolio Theory still used today.
In 1924, the first mutual fund was established (The Massachusetts Investors Trust by MFS Investment Management). In 1975, John Bogle, founder of Vencap, launched the first public index fund, and the first exchange-traded fund (ETF) was launched in 1993. Since these innovations, the use of funds in investing has exploded.
The private wealth industry is now overflowing with advisors employed by financial institutions and with mass mutual fund/ETF media campaigns. As a result, traditional separately managed portfolios have become decreasingly used except by very large asset bases (institutional assets like pension funds and insurance portfolios) and ultra-high-net-worth investors. However, in recent years there has been a marked resurgence in the client quest for customized portfolio solutions versus one-fund-for-all offerings.
Personalized Portfolio Management Provides a Separately, Actively Managed, Customized Portfolio
Personalized or customized portfolio management provides for investing practices specific to an investor’s personal desires, goals, intergenerational strategy, philanthropic planning, income tax situation, and more. It ensures a flexible investment structure that can be adjusted according to the investor’s changing needs, circumstances, and any unforeseen events.
Personalized or customized portfolio management (sometimes referred to as “individually managed”) has been gaining in popularity as the number of high-net-worth investors, and the complexity of their financial circumstances, has increased. Asset allocation considerations for the high-net-worth investor have to account for much more with respect to their personal investment criteria.
An individually managed account is professionally managed, with direct ownership of securities by the investor rather than by a fund whose units the investor (and many others) would buy. Each portfolio is unique to the individual client, whereas mutual funds are shared by a group of investors and so cannot be managed to any individual investor’s specific needs.
The Benefits of a Personalized Portfolio
The portfolio manager works with the investor to develop and formalize the Statement of Investment Policies and Goals specific to the individual investor’s personal criteria and financial circumstances.
The portfolio manager is then able to construct a personal portfolio that provides an optimal long-term investment management solution for the individual’s comprehensive financial circumstance that also provides the following benefits:
- Ability to efficiently address liquidity events such as inheritance, asset liquidation, employment bonus, or property purchase;
- Efficient tax management: Timely capital gains/loss realization and dividend income optimization can be achieved;
- Tailored investment policies and goals: Investments can be aligned with risk tolerances and values;
- Total fee transparency: All fees such as transaction fees, custodian fees and investment management fees are reported for each investment account;
- Direct security ownership: The investor benefits from a professional registered portfolio manager purchasing investments on their behalf;
- Lack of embedded capital gains: The capital gains on all sales of securities by a mutual fund for the entire year are paid out once a year and all unitholders, no matter how recently they invested, share the tax liability on those gains. With direct investments the investor is only liable for the actual capital gains from date of purchase of their actual holding to date of sale;
- A direct relationship with the portfolio manager: The investor will enjoy regularly scheduled personal investment review meetings (unlike mutual funds where there may be annual group presentations including all fund unitholders);
- Beneficial treatment of legacy holdings: On mandate inception, legacy holdings may be initially included in the portfolio to be sold at a more optimal time or can remain in the portfolio; and
- Long-term discipline: Impulsive and emotionally driven short-term decisions are avoided as investment decisions are made by the portfolio manager according to an agreed-upon long-term strategy.
An investor’s increasing wealth may require them to move from investing in mutual funds and ETFs to the direct use of a portfolio manager and a more personalized approach to investment management for a more advanced investment management service.
Bloom Investment Counsel, Inc.’s Personalized Approach to Portfolio Management
Established in 1985, Bloom Investment Counsel, Inc. has specialized in providing Canadian and U.S. dividend-paying portfolios for wealthy individuals, family offices, foundations, corporations, institutions, and trusts. With customized dividend-paying portfolios, our clients’ portfolios earn income, in addition to participating in potential capital gains from increase in value of the underlying stocks themselves. Throughout history, dividend-paying stocks have proven to be an attractive investment during all market cycles including an inflationary environment, providing investors with the possibility of growing dividends in line with or exceeding the inflation rate and a support level in a volatile market.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.