The Importance of Client Investment Portfolio Monitoring

By Mark Barnicutt on June 26, 2010

In a recent article, I reviewed the importance of having an Investment Policy Statement.  In this article, I’d like to address the importance of Investment Advisory Firms monitoring their clients’ portfolios.  Specifically, a client’s IPS is the master document that outlines how a client’s portfolio will be structured and managed on an ongoing basis.  For this reason, the IPS is the reference point against which portfolio monitoring should occur.

My experience over the past twenty years in the wealth management industry, is that IPS Statements — especially in the private wealth segment — are many times nothing more than marketing documents. Although this appears to be gradually changing, the reality is that many IPS Statements, to the extent they even exist, sit in filing drawers, and are infrequently used for monitoring clients’ investment portfolios.

To be an effective Investment Advisor, requires that clients’ investment portfolios be monitored, on a regular basis, against both Structural and Performance dimensions as outlined below:


1. Asset Class:

– What asset classes have been included in the portfolio (ie: equity, fixed income, real estate, cash, etc.)?

2. Geography:

From what geographic regions have the portfolios’ securities be accessed (ie: Canada, US, International, etc.)?

3. Investment Mandates:

– What investment mandates comprise the portfolio (ie: Canadian equity, US mid-cap, Canadian Laddered Bond, Canadian Corporate Bond, etc.)?

4. Investment Strategies:

– What investment strategies are used in the portfolio (ie: long only, long-short strategies, active, passive, etc.)?

5. Investment Managers:

– What investment managers (including the Advisor where applicable) have employed and how much of the portfolio have they each been allocated?

6. Investment Vehicles:

– What are the current Investment Vehicles (ie: investment funds vs individual security positions) that are used within the portfolio by each Investment Manager?

– What are the various constraints that have been placed around each investment vehicle type (ie: credit quality, diversification requirements, etc.)


We believe that Portfolio Performance should be measured in both (1) Absolute terms, against clients’ individual goals (ie: ‘I need $500,000 for retirement in 10 years.’), and (2) Relative terms (ie: ‘How did my US Equities perform against the S&P 500?’.
It’s important to note, though, that we view the goals-based performance asssessment as being the most relevant.  For instance, goals-based investment needs should be defined in terms of dollars and time horizon. For example: “Based upon the current cost of university education, together with reasonable forecasts for inflation, I’ll need to have $50,000 in 10 years.”  A huge challenge in the wealth management industry today is that far too many “goals” are being pursued in terms of “Relative Performance” or the “Portfolio Strategy” (ie: Income, Growth, Income/Growth). Beating the index by 100 basis points is not a measurement of success in achieving a goal; it’s a means of measuring the success of a money manager against the market and is only one factor in a client achieving their goals….in other words, it’s an “investment compliance” measuring tool not a “portfolio success” measuring tool.  Charles Ellis in his book, ‘Investment Policy‘, states it the best when he says that such relative performance measurements are statistics, not results!
If Advisors utilize this approach to monitor client portfolios on an regular basis, they will not only ensure that they fulfill the promises that they’ve made to their clients in their Investment Policy Statements but also help their clients more effectively manage the risks in their portfolios and meet their investment goals.

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