Constructing portfolios around goals, not just market winners, is part of a holistic approach.GETTY IMAGES
The stock market’s currently uneven performance, which is dominated by a select few winners, can complicate an advisor’s initial conversation with a potential client.
Jim Watt, senior wealth advisor with the Angus Watt Advisory Group at National Bank Financial Wealth Management in Edmonton, has seen several investors arrive with technology stocks in their portfolios that have appreciated considerably.
He says these individuals are now tied to sky-high expectations. They want help managing their wealth, but are reluctant to accept a more diversified portfolio and the realistic returns it could deliver.
That’s why Mr. Watt starts by asking these prospective clients when they’ll need their money, who depends on that money and which commitments it must fund.
“The financial obligations that [clients] carry are more important than their investment preferences.”
A key challenge for advisors is aligning portfolios to various client objectives – such as producing growth, income generation, capital preservation, tax efficiency and legacy planning – rather than relying on generic model allocations.
Once the range of a client’s needs is well understood, he says an allocation that appears suitable on a risk questionnaire may need considerable adjustment.
For example, Mr. Watt points to supporting a young child compared with helping an adult dependent. The timing and duration of that support affects how much money can remain invested for growth and how much needs to be liquid and accessible.
Commitments also help determine how much risk a client can afford; a market decline could mean less money available when their family needs it. Mr. Watt says clients often describe gains in percentages but losses in dollar terms. So, a 10 per cent decline on a $1-million portfolio becomes a $100,000 loss in the eyes of the investor. The consequences of that loss deserve a concrete discussion, he says.
Likewise, the loss of purchasing power over time is another risk that warrants a conversation. FP Canada and the Institute of Financial Planning use a 2.1 per cent annual inflation assumption in their 2026 long-term projection guidelines. At that rate, expenses of $60,000 today would rise by more than 50 per cent in a couple of decades.
“Protecting capital isn’t just about avoiding losses. Inflation can be just as damaging,” Mr. Watt says.
Robert Wilson, senior vice-president and head of innovation at Picton Investments, approaches investment selection by considering how each holding contributes to the investor’s goals and interacts with other holdings.
“For an investor to be really successful, they need alignment between their purpose, their plan and their portfolio,” he says.
That perspective is particularly useful when clients begin drawing income. That means understanding a holding’s distribution rate compared to its ability to generate sufficient returns to sustain those payments. “You should focus on the performance, diversification, stability [and] the quality of return.”
To Mr. Wilson, current portfolio construction should favour a healthy mix of public market equities and bonds, as well as alternatives ranging from liquid strategies to private market assets, tilting into cash flow generation for income-seeking clients as needed.
He describes funding withdrawals through a combination of interest income, dividends and realized gains, with regular rebalancing of investments based on the portfolio’s ability to generate sustainable yields or returns, depending on the client.
Aligning portfolios with client-specific objectives is far more than just an asset-allocation exercise. It’s a holistic, adaptive process that ties deeply into estate planning needs.
For example, a client may want to preserve a business or cottage for heirs while leaving other beneficiaries a fair share. At the portfolio level, tools such as insurance can play an important role, says Keri O’Driscoll, insurance consultant and senior advisor at Scotia Wealth Management.
Insurance proceeds can quickly help cover estate taxes or provide money for heirs who won’t inherit the family property.
“When we look at [life] insurance, we’re looking at it almost as a separate asset class given its rapid liquidity, guaranteed death benefit and probate bypass process,” Ms. O’Driscoll says.
Retirement, an inheritance, or a family member needing help are just some of the many life events that can change what investors need from their wealth.
Regular reviews provide space to ask what has changed, Mr. Watt says, including what goals matter most and what the portfolio needs to do to support them.
Those reviews and the conversations they spark are what connect investment decisions to everyday life. Whether it’s gaining the confidence to retire, spending time travelling or having the ability to help a child buy a home, building a portfolio is ultimately about building the life an investor wants to lead.
“My true benchmark isn’t about beating the index,” Mr. Watt says. “It’s meeting that client’s goals.”