5 Reasons to Have an Investment Philosophy

5 Reasons to Have an Investment Philosophy

David Booth, co-founder and executive chairman of Dimensional Fund Advisors, has said, “The most important thing about an investment philosophy is that you have one.”
Do you have one? And if you do, does anyone else know about it? Is it on your website, in your marketing materials and part of your prospect/client conversations?
Here are five ways an investment philosophy can impact your practice:

  1. Efficiency
    Once you have a set of guiding principles that don’t change when the market changes, everything you do aligns with those principles. It may be easier to figure out what to spend time on — and what not to.
  2. Client Experience
    You can’t provide a good client experience to someone looking for something you don’t offer. Having an investment philosophy — and being up front about it — may help you find clients who are a good fit, and avoid those who aren’t. Better to find out at the beginning than spend time cultivating a relationship that won’t last long term. And having one clear investment philosophy may allow you to be more efficient in working with clients and helps you deliver a more consistent experience.
  3. Better chance of consistent investment results
    Changing investment philosophies every time the market changes is a bit like the driver who keeps changing lanes on a crowded highway. We’ve all done this before: The cars in the next lane keep passing you, so you change lanes…only to find that now the lane you were just in is moving and you’re stuck again. Choose a philosophy you can believe in, and stick with it.
  4. Differentiation
    Having a clear and public investment philosophy may help you stand out from advisors who do not. You may also attract centers of influence who can help you build your expert team.
  5. Client conversations
    Your investment philosophy provides a foundation for client meetings and conversations. Once your clients understand and believe in your philosophy, you can spend more time talking about their goals and how to reach them, and less time on what markets are doing.

“When you’re about to do something small, you need a reason. When you’re about to do something big, you need a plan. When you’re about to do something life-changing, you need a philosophy.”1
Taking the time to determine your investment philosophy forms the foundation for your practice, and makes it possible to do something potentially life-changing for your clients.

1“How to Formulate an Investment Philosophy,” Investopedia, Zina Kumok, June 17, 2016.

Your Clients’ Retirement — More Than Just Money!

William and Sharon were driving home from a meeting with Alan, their financial advisor to talk about their retirement plans. William had decided that he would leave his work next year and Sharon would continue to work for another couple of years. The couple had been diligently saving for “the big day” when they could consider themselves fully retired and now they had actual dates in mind.
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Great “Client” Expectations

Guest author Michael Noland is a financial advisor and managing partner with Integrated Financial in Tulsa, Oklahoma.
One of the things I tell my clients is that if I’m doing my job as their advisor, they will be mad at me fairly often. This definitely gets their attention and then gives me an opportunity to have an important conversation about expectations.
To some extent, we probably all grapple with best practices for keeping clients happy as well as on track. Clients might call you about a hot stock tip their neighbor told them about, or they may feel strongly about being in a concentrated position but are lukewarm on the idea of a truly diversified portfolio. I like to tell my new clients, “If I told you I had a system that figured out how to time the market, you should run the other way immediately. (And I wouldn’t be working for a living if I actually could.)” Continue reading