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Should You Give Portfolio, Investments or Stock Advice?

Between earning 5% returns on a portfolio and 50% stocks such as Apple or Alibaba, your conversation with client naturally steers towards achieving exceptional returns on Apple and Alibaba.

After much discussions, rationalisations, measuring risks and rewards, the solution is likely geared towards achieving a modest return above inflation.

It is not whether you are right or wrong that is important, but how much money you make when you are right and how much you lose when you are wrong

~ George Soros

Be it investment professionals or clients, everyone is always looking for ways to outperform the market.  But when it comes to being a Wealth Manager, a Private Banker or a Financial Advisor, should you be providing stock or investment advice?  Or should you be providing portfolio advice?

Should you be providing:

  • Portfolio Advice
  • Investments Advice
  • Stock Advice


No. 1 Portfolio Advice

Portfolio Allocation
Portfolio Allocation

Most financial advisory or wealth management platforms focus on portfolio advisory and solutions.  The solutions are based upon portfolio theories or asset allocation.  Read More: List of Important Asset Classes and Most Popular Investment Theories Clients Ask Wealth Managers


Is it easy to provide portfolio advice?

Portfolio Advisory is very hard to recommend to clients.  This often involves needing the client to entrust a sizeable asset to you, eg. 30% of $1 Million.  The portfolio size needs to be large enough for you and your firm to spend time to provide advisory and propose solutions.  Also, most clients would understand little of portfolio solutions or it’s benefits.

The fees are more expensive since there is a team required to monitor and provide continuous advisory and updates to the client.


Why is it difficult?

Portfolio outcomes do not happen overnight.  Once a client gives you eg. $200,000 to manage, the portfolio solution is provided and implemented together with an upfront and / or annual fee.

The returns adjust according to economic situation, financial market, depending on the assets and investments allocated.  The portfolio performance will take years (3,5,10 years or longer), before it can be properly evaluated.  The returns could be positive, and might also be negative.


Why do financial institutions and advisory firms continue to provide portfolio advice?

Made popular by modern portfolio theory, it is the leading standards of managing money & assets many relied on.

The global financial industry had also developed significantly in United States, Europe and Asia-Pacific since the 1970s, giving rise to more efficient access to information, stronger infrastructure, active financial markets and cross-border investments.

All these means the money flow between cash, bonds, equities or other growing asset classes, can be evaluated arithmetically on the risks and returns.  Financial institutions, investment experts, advisory firms and individual investors can make investment decisions with adequate access to financial information.

Example of Portfolio / Asset Allocation:

Asset Instrument Allocation
Cash Deposits 20%
Equities Unit Trust 20%
Equities Equity Linked Notes 10%
Equities Securities 10%
Bonds Unit Trust 10%
Bonds Securities 10%
Mixed Unit Trust 10%
Mixed Structured Products 10%



No. 2 Investment Advice

Almost all financial institutions or advisory firms provide some form of investment solutions.

It could be investment services such as buying Unit Trust, Stocks, Bonds or applying for IPOs (Initial Public Offerings).  More extensive services could including leveraged trading, structured products or alternative investments such as hedge funds & private equities.

Many advisory firms focus on providing investment information and general investment recommendations rather than investment advice due to adherences to regulatory standards and complications should the investments go wrong.


Is it easy to provide investment advice?

It is much easier to provide investment advice.  Most clients would be happy to hear about ways to make more money, look at new investment opportunities such as if China or India is a better place to invest in, how and what to invest into, should we buy AUD or USD or is investing through Unit Trust, Exchanged Traded Funds, Futures or Structured Products the better option?

However, the adherence to regulatory standards, internal policies (do’s and don’ts in financial advisory) and potential collapse of the investments creates a huge dilemma for the advisor.


Why is there a dilemma?

To tell the client the investment may go wrong after such a strong investment recommendation or conviction that is backed by research of the entire financial institution could be a tell-tale sign of the vulnerability of the recommendation or conviction.

In addition, you have to disclose all investment risks, at the end or start of the conversation with a 1% to 3% advisory fee.  This means the projected returns that might be above inflation, might actually be eroded by the advisory fees or underperforming investments.


Why do financial institutions, advisory firms and advisors continue to provide investment advice?

When economy and stocks are hot, inevitably everyone jumps onto the bandwagon to join in the benefits of an economic uptrend.  The investment opportunities are simply too good not to participate.

When there is a pro-long economic downturn, everyone becomes skeptical of investments and investment advice, leading to wide-spread lesser investment activity, and also redundancy or restructuring in the investment advisory units.


No. 3 Stock Advice

Hong Kong Stock Market
Hong Kong Stock Market

Almost every investment idea starts with a particular stock.  The stock market is the main driver of the global financial market.  The young student aspires to invest into stocks, blue-chips ones.  The hard-working professional seeks better financial knowledge and advice to select a portfolio of stocks that might give an earlier retirement or financial freedom.  The retiree hopes to live off dividends from stocks.

If you can’t give stock advice, your client might instead start teaching you about stocks instead.


Is it easy to provide stock advice?

Yes, almost anyone can give stock advice.  Set up a brokerage account, invest $1,000 and buy some stocks.  Go to google finance or yahoo finance, watch CNBC Money or read Bloomberg news, anyone would be in tune with global economic and financial affairs or quote research from leading financial institutions such as Goldman Sachs, JP Morgan or the Federal Reserve Chairman.

Add a bit of class by quoting Warren Buffett, Benjamin Graham, George Soros, reading financial statements, doing fundamental analysis (P/E ratio etc), technical analysis or even sign up for academic certifications such as Chartered Financial Analyst (CFA) examinations … … all these adds tremendous credibility when providing stock advice.


Why is it so easy to provide stock advice?

Deposits, Bonds, Hedge Funds are much less publicised than stocks.  Everyday, the news, newspaper and major finance websites report tons of news and information of the stock market.  Major indices such as S&P 500, Dow Jones, FTSE, Hang Seng and Nikkei are often quoted.  Many public stocks are also household names such as Apple Inc, Microsoft Inc, Toyota and Coca Cola, making such stocks a daily conversation.

Brokerage firms also heavily advertise their brokerage services to encourage everyone to trade stocks.  Tools are also created for the analysis of stocks, and to aid trading activities.  All these makes stock markets very easy to follow.

Peter Lynch: “Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it”


How do financial institutions, advisory firms and advisors compete to provide stock advice?

Since it is so easy to provide stock advice, regulated financial institutions find it hard to compete alone on stock advice.  Most of the primary research (analysis of individual stocks) are done by small brokerage firms and larger financial institutions usually purchase their research for re-use.

With an uncertain forecast on stock, most shy away from providing stock advice but provide advanced tools and analysis to clients for their own decision-makings.  For clients with larger assets to manage, most would provide a portfolio of stocks to manage rather than concentrating on a few single stocks, liken to portfolio advice.

A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting.

~ Warren Buffett

In all, stock advice tends to be a strong conversational point to lead to a more holistic portfolio or investment advisory methodology.  However, most brokerages and trading firms thrive on specialising in stock advice to provide clients who are adequately able to make good trading and stocks decisions.


Portfolio advice, investment advice or stock advice, which are you providing or should you provide to clients?  Or is all these simply part of a wealth or financial advisory solution to client? | The leading financial website for financial professionals, professional investors and HNW investors. Covering capital markets, investments and private wealth in Asia. How do you invest $3 million to $300 million? How do you manage $20 million to $3 billion of assets? Quicklinks: Caproasia Access | TFC | Caproasia | Jobs

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