Smart Strategies — and Brazilian Gold

BY STEVE DINNEN

We all have an investment style — aggressive versus conservative, speculative versus capital preservation, etc. But what about financial planners? Will one stick all of a client’s money into municipal bond mutual funds, while another chases a Brazilian gold mine startup in hopes of hitting a home run? Will they let their clients go down these paths?

No, says Reed Rinderknecht, or at least they shouldn’t. According to Rinderknecht, a lead adviser at wealth management firm Foster Group in West Des Moines, he and most other financial planners will devise a style that is individualized to each client based upon their research into what you are trying to accomplish with the money you entrust to them.

“We let the financial plan lead the way” on deciding the investment path to pursue, says Adam Obrecht, of AO Wealth Advisory in Urbandale. The financial plan is an all-important document that spells out for both client and adviser what the goal is for the money that’s being managed, and how that goal will be reached. 

Financial plans are built with information gathered by the adviser. How old are you, how much money do you have, how much do you want to have, and by when? Why are you investing? Is it for retirement, or college expenses for a child, or a vacation home?

Next, they’ll want to know your tolerance for risk, as well as your ability to weather financially rocky times that surely will come. 

From all of these questions, the plan will emerge. It will guide the adviser in deciding where to place the client’s funds. Advisers will have access to mutual funds or exchange traded funds (ETFs) that cover a multitude of styles and can build a pretty well-rounded portfolio. Large cap, small cap, growth, value, international, global, bonds — all these are on the table.

“We have REITs (real estate investment trusts), inside and outside of the U.S. We have emerging markets outside of the U.S.,” Rinderknecht said of the investment array. And Foster Group has access to some alternative portfolios, such as reinsurance.

“We use a mix of both (funds and ETFs),” said Obrecht.

The building blocks are basically the same for everyone, Rinderknecht said. Adjustments are made for the age of the client and the investment goal; a 70-year-old client is likely to have much more exposure to bonds than would a 30-year-old.

What advisers tend to shy away from are individual equities — specific stocks such as General Motors or Amazon. And they typically will not allow a client to make selections.

“If the investor shapes the adviser, he needs to find a new adviser,” said Rinderknecht. There are liability issues tied to letting a client choose where to invest, and both Rinderknecht and Obrecht say their firms follow the fiduciary standards that require them to act in the best interest of their client.

If you want in on that Brazilian gold mine, you’ll have to do so on your own, outside of the program your planner has designed. That’s not their style.