Firms that provide FAs with discretion in managing client portfolios?
Per my research, most firms give financial advisors very little latitude in terms of designing client portfolios. For example, an advisor might have discretion to shift a stock/bond portfolio from 60/40 to 70/30 but they cannot do much outside of that band. I'm interested in finding firms that allow advisors to design client portfolios with a lot more rope. With that, my question: Are there any firms that provide advisors with significant latitude to design client portfolios (stock picking, tactical allocations, etc.)?
As background, per my research, most of the large firms realized that the vast majority of advisors aren’t very good at investing so they mostly centralized investment decision making resulting in FAs becoming relationship managers (listen to client problems, play golf, buy dinner, get yelled at when the markets are down, etc.) with minimal latitude in adjusting client portfolios.
Thank you.
Based on the most helpful WSO content, it seems that the level of discretion given to financial advisors in managing client portfolios can vary greatly depending on the firm. Some firms may indeed limit the latitude of their advisors, keeping them within certain boundaries when it comes to designing client portfolios.
However, there are also firms that allow their advisors more freedom. For instance, in the independent channel, advisors have the liberty to conduct business as they see fit. There's no product quota for any particular type of business, and while there may be a minimum total production requirement to keep your contract, you're generally free to manage client portfolios as you deem appropriate.
It's important to note that firms that claim to be independent because they pay you on a 1099, but have quotas to sell their proprietary insurance/annuity/fund products, are generally not considered part of the broad "independent" channel.
Remember, while having more freedom can be appealing, it also comes with greater responsibility and potential risk. It's crucial to have a solid understanding of investment strategies and risk management to effectively manage client portfolios.
I hope this helps! If you have any other questions, feel free to ask.
Sources: Calling all Financial Advisors: What products do high net-worth people use to manage their wealth?, https://www.wallstreetoasis.com/forum/wealth-management/qa-a-bored-financial-advisor?customgpt=1, What is Private Capital / Private Market Advisory?
They're out there, but there's a reason it isn't common. An FA's focus should be on planning/ maintaining the relationship. I always tell clients that you want someone looking at markets/ their accounts 24/7, versus me doing it in between meetings.
If you start bringing up Alpha or Std. Deviation in a meeting, most peoples' eyes glaze over. Overall, it's an important competency, but managing a portfolio is a full-time job itself. To anyone that is able to do both well, a tip of the cap to you.
Thank you for the response. It sounds like portfolio management might be a better path for those inclined toward managing the accounts (vs maintaining relationships)? What does the PM role entail? I've heard there isn't much latitude there either and PMs are really just typing data into efficient frontier software then rebalancing. Welcome your input. Thanks
Yes, PM is the correct role for those individuals versus being an FA. To your question; I would say it again depends on the shop. It can vary a ton based on what the firm or team focuses on. The title PM is ubiquitous and can mean a lot of different things. You have plenty of fund-only firms that rebalance and fund shop, sort of what you alluded to.
Conversely, others have a much broader offering and full-discretion, with an emphasis on individual securities. On the client-facing side, I'll occasionally have a PM sit in with a sophisticated client - not all of our PM's have this interest or skillset.
In terms of role as a 'PM' in the PWM space, I'd categorize as the following:
At my firm, a young analyst isn't going to dive right into security selection. They'll typically wear a bunch of different hats and become well-versed in a few different functions above before doing so. I hope that helps.
This is helpful, thank you. The Traditional PM/CIO role you mention sounds the most interesting/up my alley. But, as you also point out, PM is ubiquitous (nice choice of words) and it seems forums like this one are perhaps one of the fastest ways to separate the wheat from the chaff. With that, I wonder if you (or anyone else reading) know which firms offer these discretionary PM roles. Perhaps the reality of the situation is that I will just need to knock on a lot of doors to find out, but any shortening of that process would help.
Knocking on doors and your own due diligence will be best here. I don't have a list other than what I know in my region. Schedule a coffee meetup or phone calls, you'll want an investment philosophy and culture that you can align with. Also, make sure their advisors are solid - you want to be at a firm with a growth-mindset. Best of luck to you.
I believe most of the Wirehouses have a program(s) where FAs have full discretion and they can make decisions on individual securities basis. I know this for a fact. There are parameters that firms put in place in order to protect the clients best interest, but those parameters are put in by the FA based on the specific client. So to answer your question, Yes, there are firms that provide advisors with significant latitude to design client portfolios. Of course there are managed programs from the asset management division, and or other third party managers as well...it's up to the FA (and the client of course).
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