Financial Opinion and Insights

Are You Managing Assets or Simply Collecting Investments?

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

It happens far more than you might imagine. 

New clients go through the normal first steps of the planning process:

  1. We establish a risk profile – How the client feels about money, including their expectations and attitudes about risk.
  2. We collect data – We list and categorize all current holdings for both taxable and tax-deferred accounts.  We then conduct a technology-driven portfolio analysis to determine the risk level of their current portfolio of investments.
  3. Revelations begin to appear:  Are the current investments, the rate of return, and the current risk level assumed in line with their risk profile, needs, and expectations?

What people say they want is different from what they’ve done.   In short, they haven’t created the portfolio characteristics they themselves said they want!  It’s not really their fault.  It’s just how things happen in the absence of relevant information.

Most investments tend to be `purchased’ at retail a-la-carte without regard to other holdings.   Based on my experience, this virtually always results in a portfolio they never would have purchased if they’d planned it in advance; but now, it’s the one they have.  Then, when bad things happen – they always seem to when you least expect it – they end-up with unpleasant surprises.

Here’s how to avoid this happening to you:

  1. Remember:  The plan comes first –  Is your plan out of date?   It is for most people, if they even have one.  You wouldn’t build a house without a blueprint; so, it stands to reason a professionally-prepared financial blueprint for the future is a good thing to have before you start buying tools and materials.   Ideally, your plan is technology-driven so that key inputs are always being integrated from the back-end keeping your plan data and assumptions constantly current.
  2. Make sure your plan is complete –  The plan input should include all your holdings in all accounts, including credit unions, banks, brokerages, your company 401(k), etc.  If you don’t have complete information, you’ll have meaningless results – or worse, even potentially damaging, because you’ll be making decisions based on faulty data.  Dynamic plans will provide answers to `what-if’ questions like whether you buy a car every 3, 5, or 10 years – the results of your decisions 10, 15, or even 30 years out can be dramatic.
  3. Do a complete plan review at least annually –  Do you have an annual checkup with your doctor?  You probably should.  Your financial health is important, too; it also affects other people in your life.  If you have a constantly updated plan, your spouse will be in far better shape if something happens to you.  In my experience, spouses who are disengaged – they don’t know what they own or why they own it – are the ones who make the worst decisions at the very time they shouldn’t be making any big decisions at all. And, make sure your risk profile is updated at each review. 
  4. Consolidate assets and reporting – Do you have assets scattered among four or five institutions with the right-hand not knowing what the left-hand is doing?  Is your reporting fragmented without your receiving a true consolidated picture of what you actually own?  Few investors know the risk profile of their entire portfolio simply because they don’t have consolidated reporting and analysis.  How close is your portfolio profile to your true risk profile?  How close is your existing portfolio allocation to an optimized allocation?  Consolidating your planning, custodians, and reporting will simplify your life and probably reduce, rather than increase, your assumed risk. 

There’s a difference between making `investment’ decisions and managing assets.  One usually results in a collection of `scattered assets’ and the other usually results in a more simplified life with greater control over what you’re really doing.


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.  He’s been a headline speaker at conventions throughout the United States, Canada, and the U.K. and has appeared in `The Journal of Compensation and Benefits’, as well as in The Profit Sharing Council of America’s `Insights’.    Jim has also appeared on American Airlines’ `Sky Radio’, heard on more than 19,000 flights.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, http://www.indfin.com.