In previous columns, I have addressed whom to target for managed accounts and why such investments are attractive to affluent clients. This month's column concentrates on seven key factors that drive successful investing of any kind. When meeting with clients or prospects, this is what you need to get done.

  1. Establish appropriate investment goals

    Little will go right unless you immediately answer the query: Why does a prospective client want to invest? It's a question with multiple answers — for a comfortable retirement, perhaps, but also for college funding, long-term health care, family legacy and charitable gifts. Each goal carries its own time horizon and funding requirements, and, of course, needs to be adjusted as the situation warrants. For example, if a retirement account is down because of market performance, it may be necessary to increase savings rather than to rely on the investments to catch up. Some goals might have to be postponed or eliminated.

  2. Define an appropriate risk profile

    A recent study by the retirement education company Financial Engines showed that 55 percent of clients had investments with inappropriate risk. (The report was based on responses from 900 companies with a combined 3.2 million retirement plan participants.) Given their demographic profiles, 93 percent of the respondents had investments considered too risky and 7 percent too conservative. Yet only one-third of the survey's participants made adjustments when informed of their investment/risk mismatch. The moral: It's important not to let bull market memories gloss over the harsh reality of market volatility.

  3. Set appropriate time horizons

    Because the key to investing success is often merely staying the course, the best managed account solutions are of the long-term variety. A current 50-year-old may not fully appreciate the financial implications of living 25 or 30 years past retirement age. Managed account solutions can help address this.

  4. Establish an investment process

    Managed accounts should be assembled using four steps. First, set an appropriate investment goal; second, develop an investment policy and asset allocation strategy; third, select complementary investment managers; and fourth, monitor the account and rebalance it as needed.

    Each of these are of equal importance and are co-dependent. This four-part process is used by virtually every major pension fund, university endowment and charitable foundation.

  5. Establish an investment blueprint

    An investment policy statement (IPS), however brief, is critical to the success of any investing program. You and your clients must agree — in writing — to the plan before it is executed. Without the blueprint, you risk erecting a shaky building — and renovations turn into a complete crapshoot. The IPS discipline has contributed mightily to the success of institutions whose returns eclipse those of most individuals.

  6. Diversify

    It's a near certainty: When an investment looks like a sure thing, the bottom is about to drop out. Manager styles and asset classes slip in and out of vogue, but accounts that maintain footing in each of the important investment areas — value, growth, large cap, small cap, international, fixed income — are insulated from unexpected nosedives and failures.

  7. Monitor and Rebalance

    Even a well-built house needs maintenance. Consider that a 60/40 equity/fixed portfolio mix, if left undisturbed since 1999, would have reversed itself to roughly 40/60 by the end of 2002. Though most advisors and clients tell me they think rebalancing increases return, studies reveal a much greater impact on reducing the volatility of return — a client-friendly benefit that helps everyone stay the course.

When your client signs the documents for a new managed account, it marks the beginning of a long-term relationship. Your client is looking to you for guidance and supervision, as well as for protection and growth of their assets. But emotions can undermine even the best-laid plans. Most important is to present the solution and highlight its features — not as a loose-knit blend of attractive options, but as a blended recipe of ingredients whose individual importance may escape the immediate attention of the client.

Writer's BIO: Steve Gresham is executive vice president, chief sales and marketing officer for the private client group of Phoenix Investment Partners, Ltd. He is the author of The Managed Account Handbook: How to Build Your Financial Advisory Practice Using Separately Managed Accounts and Attract and Retain the Affluent Investor: Winning Tactics for Today's Financial Advisor. Contact him at