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Posted by Brett Gustafson on Oct 5th, 2023

Portfolios with a Purpose – A Little Off the Cuff

Few things compare to the feeling of stepping out of your tailor’s shop in a perfectly fitted ensemble, be it a finely tailored suit or an elegantly crafted dress. It’s that singular moment when your attire aligns with you, and you enjoy the unique sense of being tailor-made for distinction. As consumers, we are inherently drawn to the allure of customization – the prospect of being distinctively and unapologetically ourselves. In the realm of investment portfolios, the very attribute we treasure – customization – can prove to be a formidable hindrance. The idea of presenting a flexible investment process for clients can lead to unexpected complexities and drawbacks when applied to the world of multi-asset portfolios.

For context, customizing portfolios is in reference to the “client-driven” customization. Make no mistake: it is important to have a unique model portfolio offering to clients, whether that be your process, asset allocation makeup, or macroeconomic tilts. In marketing efforts, it is quite common to come across an advisor website that says they provide customized solutions for all clients. This has been the industry standard for a long time, making clients feel like they are getting a customized portfolio the same way they got that tailor-made outfit. For the most part, clients are getting a customized portfolio that the advisor has designed. Which in most cases is not the same as anything offered anywhere else.

The breakdown in the process occurs when clients seek further customization beyond the standard model portfolio. It’s a challenging task for a few reasons to accommodate these requests, but it’s vital not to conflate client-oriented marketing with the core investment process. Model discipline is as fundamental to your investment process as your asset allocation or investment selection.

The reality is that model discipline stems from the ability to form trust with the client. In most scenarios, a client is handing over their life savings for you to manage and grow for them. It is not out of the ordinary for the individual to still feel connected to or in control of those investment decisions. However, the ability to form trust with the client and lay out the groundwork for a relationship where the decisions of the portfolio are up to the portfolio manager’s discretion is vital for success. Not just the success of returns but the success of a long-term relationship with that client. They are paying the portfolio manager; if a sleeve of decisions is made by the client, why would they pay the portfolio manager a management fee?

A common scenario might be during the initial conversations with a prospective client. In that meeting, you are running through a breakdown of your model portfolios. That client might ask, “But if we wanted to increase the yield of the balanced portfolio, how would we do that?” In an ideal scenario, you wouldn’t, but when addressing this with a prospect, a much more nuanced approach is necessary.

Engaging in a discussion about modifying the portfolio could inadvertently introduce elements that aren’t aligned with your original design. Therefore, it’s often prudent to offer a simple explanation of the portfolio’s current positioning. Alternatively, you might suggest that any additional strategies beyond the portfolio can be separately managed by the client. That typically resolves most requests, but if it doesn’t, as difficult as it might be, that client may not be a fit for your practice.

In our view, what seemingly might be a minor adjustment to your investment portfolio can have wide-ranging implications for the rest of your investment practice. Minor adjustments would not have an immediate impact, but over time, there are a couple of areas that will be negatively impacted and prove to be a hindrance to success.

I. Scalability

Most advisors have the goal of scaling their business, whether that stems from personal aspirations or perhaps pressure from the financial institution they are affiliated with. Numerous studies have delved into the time allocation of successful advisors, and a common thread emerges: they dedicate less time to managing investments and more time to aspects of their practice that clients view as beneficial to them.

However, the ability to scale can be significantly hindered when advisors must oversee hundreds of customized portfolios in addition to their model portfolios. To fulfill their fiduciary responsibilities, advisors must subject all modified portfolios to the same rigorous review process applied to their standard portfolios. This extensive monitoring can consume a substantial amount of time, diverting their focus from other crucial areas of their practice.

II. Deterioration of Client Service

In alignment with the aspect of “time,” there will be an overall deterioration of client service levels across the board. For every client that gets a modified portfolio, there is another client who doesn’t, which means that a specific client is receiving less of your time for paying the same management fee.

This division of focus can lead to an imbalance in service quality, potentially causing dissatisfaction among clients who don’t receive the same degree of personalized attention. It’s essential for advisors to strike a delicate balance between catering to customization requests and ensuring equitable service distribution among all clients to maintain trust and satisfaction across their client base.

In the simple scenario below, imagine dedicating 50 hours per month to portfolio management. Each colour on the chart represents a distinct model portfolio. When you have just 5 model portfolios, you can allocate a generous 10 hours per month to each one. However, if you start compromising on model discipline and end up with 25 customized portfolios, your available time for each model shrinks drastically to just 2 hours per month.

time is money

Now, consider this from the client’s perspective: Would they prefer their advisor to spend a substantial 10 hours per month on their portfolio or only 2 hours? The answer is clear. As the level of customization increases, there’s a growing risk that some portfolios may receive minimal attention or even be neglected altogether.

Final Thoughts

In practice, the challenge lies in managing this balance between customization, scalability, and service quality. It is important to assess each customization request for the requesting client and the broader client base. It does not have to be an all-or-nothing decision, and as much as it would be nice to say “No” to every request, that just is not the way that it works. It is important to have a strong communication plan that is very transparent, explaining the trade-offs involved with a modified portfolio and ultimately determining if it is worth it for your practice.

As you can see, something that might be considered minor can have a much larger impact on your practice. In the end, by maintaining this relationship structure, you can ensure every client, much like a customer leaving a tailor shop, feels well-served and valued.

Insights With Purpose

At Purpose, we are attempting to change the status quo within the investment industry – namely the enigmatic standards by which the industry operates. We are an open book when it comes to portfolio design and discussions surrounding our outlook and strategies. We want to make managing portfolios simpler for advisors and act as a sounding board for ideas. We start by running portfolio comparisons between your portfolios and ours. Not to say ours is right and what you are doing is wrong, but to understand the differences and have discussions surrounding the rationales. We aim to keep this discussion going quarterly, and this is not a one-and-done service. We want to build our relationships with advisors so that the end client has a satisfactory investment experience.

If you want to know what exposures your equity portfolio is tilted toward, feel free to reach out to our team at

As the great Peter Lynch once said, “Know what you own and why you own it.”

— Brett Gustafson is a Portfolio Analyst at Purpose Investments

The content of this document is for informational purposes only, and is not being provided in the context of an offering of any securities described herein, nor is it a recommendation or solicitation to buy, hold or sell any security. The information is not investment advice, nor is it tailored to the needs or circumstances of any investor. Information contained in this document is not, and under no circumstances is it to be construed as, an offering memorandum, prospectus, advertisement or public offering of securities. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice.

Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments and the portfolio manager believe to be reasonable assumptions, Purpose Investments and the portfolio manager cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Brett Gustafson

Brett is a Portfolio Analyst at Purpose. He is responsible for relationship management and advisor support and focuses heavily on portfolio analytics for advisors, our own proprietary models, as well as equity research. With over nine years of experience in the investment industry, Brett started his career out as an Investment Advisor at a Canadian independent asset management firm where he cared for several high-net-worth families. Brett graduated from the University of Calgary with a Bachelor of Commerce degree. He is currently pursuing his CFA designation with the goal of becoming a Portfolio Manager.