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Building a Portfolio for the Independent Client

Truly independent clients may need to take less risk in their portfolios than those clients without bias.

Michael M. Pompian, 10/23/2014

This month's article is the 10th in a series called "Deep Dives into Behavioral Investor Types." This series is intended to help advisors create better relationships with their clients by deeply understanding the type of person they are dealing with from a financial perspective and being able to adjust their advisory approach to each type of client.

As we learned in the last series, there are four behavioral investor types, or BITs: the Preserver, the Follower, the Independent, and the Accumulator. As noted in previous articles, the learning process for each BIT will be a series of three articles:

1. Part I will be a diagnosis of each BIT and discussion of its general characteristics.

2. Part II will be a deep dive into the biases of each BIT.

3. Part III will be how to create a portfolio for each BIT.

This article is Part III of the Independent BIT.

Creating Behaviorally Modified Portfolios
For today's financial advisor, private banker, or wealth management practitioner, creating viable and unique investment solutions in response to the array of financial situations and personalities that clients present is the heart and soul of the job.

Sometimes the job is relatively easy: The client being advised appears rational in his or her approach--that is, he or she seems to understand the importance of asset allocation and has reasonable return expectations. For these clients, the typical method for arriving at an asset allocation is to administer a risk-tolerance questionnaire and use financial planning software to create a mean-variance-optimized asset allocation program.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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