One of my clients recently asked me, “How much has your portfolio lost in the market this quarter?” My answer was, “Exactly the same percentage as yours.”
To me, managing my clients’ portfolios in the same way I manage my own is a no-brainer. Employing the same investment philosophy in both cases is a matter of both common sense and integrity. If I believe in what I do and how I do it, why on earth would I recommend something different to clients than I would practice for myself?
I was somewhat surprised, then, to read an October 12 post at blogonwealth.blogspot.com from advisors Randy Baum and Jeff Spears of Sanctuary Wealth Services.
According to this post, some brokers and financial advisors had sold much of their own holdings before what the bloggers call “the October bloodbath.” The post goes on to state, “Upon further investigation, I learned, from a former head of one of San Francisco’s top independent wealth-management shops, that few, if any, of the advisors, principals, or research people he worked with while at that firm, actually followed the investment advice they give their clients.”
Obviously, one statement on a blog is a long way from establishing that most, or even many, advisors handle their own investment portfolios differently than they do those of their clients. Still, I found this idea disturbing.
How many financial advisors in recent months have sold themselves out of the market, but their clients are still 
in? How many leverage themselves to the hilt, but would not advise a client to do the same? How many go without disability, health, liability, or other types of insurance that they insist on for their clients? How many recommend asset protection strategies, such as trusts, that they don’t use themselves?
Obviously, in any reputable advisor’s practice, various clients’ portfolios are not going to be identical. Specifics such as the mix of asset classes will vary, depending on factors such as age, cash flow needs, and risk tolerance. But each portfolio—including the advisor’s own—should be based on the same investment philosophy and managed with the same attention and skill.
The idea of financial planners and investment advisors applying different rules for themselves than for their clients immediately brings to mind the suspicion that planners are somehow taking advantage of inside information. It’s easy to assume they are doing better planning for themselves than they are for their clients.
This may be true in some cases. I think, however, that generally the opposite is true. Most would be way ahead to heed their own advice. My experience is that most planners and advisors who “time” the market are acting out of an emotional reaction to the markets, which is exactly what they tell their clients to avoid. By not following their own advice to stay in for the long haul, they end up doing much worse than their clients.
I’ve done some research in recent months about financial planners engaging their own financial planners. Those who did reported one of the most significant benefits was that their own finances received the same attention as those of their clients, instead of always being put on the back burner. This is true for me as well. I manage my own portfolio, but get additional perspective from my planner, whose investment philosophy matches my own.
As a client or potential client, it makes sense to have doubts about financial advisors who don’t take their own advice. It is completely reasonable to ask how an advisor manages his or her own investments. The best financial planners, like the best chefs, eat their own cooking.
