Advisers acting as portfolio managers are causing major concerns about performance seeing as only about 10 percent of advisers are competent in allocating assets. This means that close to 90 percent of advisers are taking on more control and responsibility without fully understanding the investment decision making process. To date, advisers acting as portfolio managers have grown to approximately $150 billion at Morgan Stanley, up from $17 billion in 2003, and the trend is continuing to grow at a rate of $1 to $2 billion a month. This trend translates into a major dilemma for investors since very few advisers have the knowledge and skill to successfully analyze and allocate assets in a portfolio.
Asset allocation is an investment strategy that seeks to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investors risk tolerance, goals and investment time frame. A fundamental justification for asset allocation is the idea that different asset classes offer returns that are not perfectly correlated, and so diversification reduces the overall risk in terms of the variability of returns. There are many types of assets that may be included in an asset allocation strategy such as: cash, bonds, stocks, commodities, real estate, and derivatives, and there are several types of asset allocation strategies based on investment goals, risk tolerance, time frames and diversification.
Some broker dealers have rolled out new measures to gauge how each individual client's portfolio is performing. For example, Morgan Stanley advisers who manage their own portfolios rate each client as conservative, moderate, or aggressive. Individual returns are then compared with all the other clients' at the wirehouse in the same category, instead of a stock or bond index. Advisers who are trailing their peers' performance are targeted for more help, either through extra training or resources. In some cases, advisers who are trailing their peers are pushed to outsource their investments and focus on other areas of financial planning, such as relationship management, prospecting, and tax planning. These measures are a good start for broker-dealers who support the current trend of advisers taking on the role of portfolio managers, but the number of advisers who truly understand what it takes to successfully manage a portfolio is certainly not where it should be.
Have you suffered investment losses due to inadequate asset allocation? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website,, post a comment, call (800) 732-2889, or email Mr. Pearce at for answers to any of your questions about this blog post and/or any related matter.