I recently reviewed a family's finances that included multiple trusts, individual investment accounts, and retirement accounts.
Every account was allocated almost exactly the same.
Taken one at a time, nothing looked especially strange. The portfolios were professionally managed and the allocations were defensible. But once I put them next to one another, the problem was hard to miss.
A taxable account for the parents, retirement assets, trusts, and accounts for younger family members appeared to be managed as though they had the same purpose, tax treatment, and time horizon. They didn't.
If the 18-year-old child and the parents in their 50s have portfolios that look almost identical, I want to know why. Different accounts can have completely different jobs. “That's how we allocate everything” isn't much of an answer.
The family had accumulated a collection of reasonable portfolios, but there was no clear investment strategy tying them together.
I see versions of this a lot.
Wealth has a way of accumulating in weird little pieces. Maybe it's an old 401(k). Maybe somebody opened an account at Fidelity or Schwab, did some dabbling, and mostly forgot about it. It's still sitting there. Who knows what it's doing.
Then someone inherits stock. A trust gets established. Another account gets opened at a different firm. A friend or business relationship introduces another manager. Eventually there may be several institutions and several people doing good work on individual pieces.
At some point, somebody still has to look at all of it together.
The family portfolio starts above the accounts
When I review a family's investments, I want to start at the top.
Before I get too interested in what one account owns, I want to understand what the family owns across everything, how much risk they're taking, what they're paying, where there are embedded gains, and what the money is ultimately supposed to do.
That full picture can change the investment decisions quite a bit.
One important example is asset location. Asset allocation is the mix of investments you own. Asset location is where those investments are held across taxable, retirement, trust, and other accounts.
Those accounts aren't interchangeable.
An IRA that may remain invested for decades can have a different time horizon from a taxable account funding current spending. A trust for children or grandchildren may have a different purpose from the parents' retirement assets. Taxable bonds, municipal bonds, equities, and income-producing investments can make more or less sense depending on where they're held.
We've even come across municipal bonds sitting inside retirement accounts. That's the kind of thing that makes you stop and ask why.
Sometimes the time horizon is just as important. If a family has plenty of income and assets that already appear to support retirement, I may have a pretty straightforward conversation with them. Look, with the money you currently have, you're going to be fine. If this particular pool of assets is really going to the next generation, we should invest it with that purpose in mind instead of treating every dollar as though you might need it next year.
I prefer to establish what makes sense for the family overall and then figure out what each account should be doing within that plan. You can end up with accounts that look quite different from one another for very good reasons.
In fact, that's probably what you should expect.
Having several managers can still leave the family concentrated
Another situation I run into is a family that has spread assets among several investment managers and feels well diversified because the money is spread around.
Using several managers can be perfectly appropriate, but it doesn't tell you what you own in aggregate.
Two firms may hold many of the same securities. Different strategies may create similar underlying exposures. Each manager can produce a portfolio that looks diversified on its own while the combined family portfolio carries a concentration nobody intended.
Having several managers is not, by itself, an asset allocation.
This is also where the difference between an investment manager and an advisor matters.
A portfolio manager may have been hired to manage a particular strategy and beat an appropriate benchmark. That's a legitimate job. They may be doing exactly what they're supposed to do. It still doesn't make them responsible for how that strategy fits with three other managers, a retirement plan, a trust, concentrated stock, the family's tax situation, and everything else outside that portfolio.
I've seen families with plenty of professional advice around them who still couldn't tell you their actual asset allocation.
That's the blind spot.
And it goes beyond the allocation itself. If one account has gains and another has losses, those decisions should be made with awareness of each other. A family making meaningful charitable gifts may have appreciated securities that deserve giving consideration before another check is written. Beneficiary designations and account titling may have been put in place years ago and no longer line up with the current estate plan.
These aren't necessarily signs that somebody made a bad decision. More often, nobody was given responsibility for connecting the decisions.
The family ended up with good people working on separate pieces.
Nobody was looking from the top.
The transition deserves as much thought as the target portfolio
Once you put everything together, there are usually things you would change. Finding them is typically easier than fixing them.
At some point, somebody has to sign the paperwork and say, yes, we're actually going to make these changes. That can be one of the hardest parts for the client.
And it doesn't mean selling every existing position and rebuilding the portfolio tomorrow.
Many families come to us with stocks they've owned for years and significant unrealized gains. A perfectly clean portfolio on paper may be a very expensive portfolio to create if you ignore the tax consequences of getting there.
So the transition becomes part of the investment work.
Low-cost-basis securities may be good candidates for charitable giving. Other positions might be worked out of gradually over several tax years. In some cases, an existing portfolio can be handed to a manager who transitions it over time rather than realizing all of the gains at once.
I want to know those facts before we start trading.
The same goes for the family's goals. Are these assets supporting retirement? Are they likely to pass to the next generation? Is the family charitably inclined? Are there major liquidity needs coming up?
Those answers affect what I'd want the portfolio to look like and how I'd want to get it there.
Put the statements together and see what they actually say
I love the analytical side of this work. Give me the statements and let me dig through them.
My favorite part is putting everything into one clear picture and showing a family what they actually own, where it sits, what they're paying, and how much risk they're taking for the return they're getting.
Often, they haven't seen it that way before.
A lot of people know whether an account went up or down last month. They look at the statement, see the market value moved, and that's their only sense of how things are going.
That's not really performance.
It doesn't tell you whether you're getting an appropriate return for the amount of risk you're taking. And it definitely doesn't tell you how the family portfolio is doing across everything you own.
Once we have that view, we can start making useful decisions. Maybe the overall risk is different from what the family thought. Maybe two managers are overlapping. Maybe assets are sitting in the wrong types of accounts. Maybe the portfolio is fine and the bigger issue is getting the estate documents, beneficiaries, or outside professionals back in sync.
You don't know until you put it together.
A useful pressure test for your own setup is whether you can explain the family's investment strategy without walking through the accounts one at a time.
You should have a good sense of what you own in aggregate, why certain investments are held where they are, and who is responsible for noticing when a decision in one part of your financial life affects another.
If answering that requires five separate statements and three different phone calls, I'd pay attention to that.
Every account should have a job.
All of those jobs should add up to one family strategy.