How financial advisers build the portfolio of your dreams

What would your dream portfolio involve? Perhaps substantial shares in CSL purchased decades ago. The big banks. A good smattering of long-held Nvidia and Apple. A dose of private credit, a high-quality property and obviously some high-yield fixed income.

A financial adviser might bring you back down to earth on the reality of having that exact portfolio – it’s not like you can travel back in time after all, but their aim is still to build your dream portfolio. In a different way. It’s about reaching your life dreams – and yes, if your dream involves holding some select stocks, that can be part of the aim too. Such a portfolio is bigger than simply asset allocation percentages.

How do they create such a portfolio?

It’s more than numbers, a bit of psychology comes into play too.

Chad Brendish, Financial Adviser for Morgan Stanley Wealth Management, shared his approach to building client portfolios – and it’s a good reminder that investing has strong ties to emotion.

Before you talk about investments

There’s a range of questions financial advisers might ask you when they first meet a new client – it’s all about getting to know you, your values and how that translates to finances. This is important because it will frame what types of investments and style of portfolio might be best for you – for example, if you are worried about loss in your portfolio, you might be better suited to defensive strategies to preserve capital rather than a high-growth approach.

The top five questions Brendish asks and why follow:

1. If you suddenly received an unexpected windfall, how would you prioritise using that money?
   “This question reveals the client's financial priorities, whether they lean towards spending, saving, investing, or charitable giving, which can inform their investment objectives,” Brendish says.
2. What was your most significant financial decision in the past and how did you feel about the outcome?
   “This helps assess the client's comfort level with risk, their decision-making process, and how past experiences shape their current risk tolerance.”
3. In an ideal world, what would your financial situation look like 10 years from now?
   “This explores long-term goals and helps align the investment strategy with the client's vision for the future.”
4. How would you react if your investment portfolio lost 20% of its value within a short period?
   “This question directly assesses the client's emotional response to market volatility, a key aspect of risk tolerance.”
5. Which is more important to you: preserving your current wealth or maximising growth?
   “This question helps clarify whether the client prioritizes wealth preservation or is more focused on growth, guiding the adviser in balancing risk and return in their portfolio.”

How much risk can you stand?

Often when we think about risk, we talk about your ability to financially recover from loss. A full risk profile for an investment portfolio extends broader.

Brendish takes four steps:

1. Financial situation, including income, expenses, savings and debt.
2. Investment goals and time frame.
3. Past behaviour in terms of market events or financial challenges.
4. Personality traits, such as a tendency to be optimistic or pessimistic.

“A client’s tolerance to risk is not static and may change over time for a variety of reasons. We assess our client’s risk tolerance on a regular basis and adjust their investment strategy as necessary,” Brendish says.

Why does a risk profile matter?

If you have a long timeframe to meet your investment goals and aren’t phased by market volatility, you have a higher tolerance to risk and are more likely to be able to use a high-growth strategy that may hold greater risk of loss.

What’s your dream? Setting investment goals

Everyone has a reason for investing. Perhaps it’s to live the champagne lifestyle in retirement, or maybe it’s to build a deposit for your first home. The ‘why’ of your investments influences what type of assets you should be looking at to reach your dreams.

While some clients may have a clear picture of their goals, others may have more trouble articulating beyond a general desire to improve their finances. Brendish has a structured process to help clients set clear and achievable goals that are aligned with their financial situation.

As part of this, Brendish will consider a client’s financial situation, clarify short, medium and long-term goals, ensure goals are specific, measurable, achievable, relevant and time-bound, prioritise the goals and set milestones for achieving these. He’ll also review the goals and progress on them regularly.

Designing the portfolio

Armed with the psychological side, financial advisers can then get into the numbers – what is the optimal asset allocation and investments within those allocations to help a client reach their dreams?

Morgan Stanley’s wealth management research team have an asset allocation and implementation strategy that financial advisers start with.

“This portfolio is then customised to align with each client’s preferences, incorporating various implementation methods, liquidity preferences, responsible investment criteria, and other individual considerations,” says Brendish.

When it comes to underlying investments, Brendish selects from a Focus List which is built using qualitative and quantitative data and “seeks evidence of persistent added value, overarching quality, transparency, liquidity and cost-effectiveness". 

Such a list might be referred to as an Approved List in other advice firms, and it’s typical for a fund to need to meet a range of criteria to sit on it. While Morgan Stanley has its own research team setting ratings, in other firms, you might find they use Zenith or Lonsec ratings as part of their criteria and might restrict their fund universe based on ratings like Approved or the equivalent before undertaking further research.

It's also worth noting that financial advisers will also take your preferred investments into account. For example, say you have long-held shares that you would like to keep and they still match the overall strategy, your adviser will incorporate that as part of the relevant allocation in your portfolio.

Final things you can do to help your adviser build your portfolio

Your financial adviser’s ability to build your dream portfolio is affected by the information you share with them. Be honest about your finances and share accurate records, be comfortable digging into your financial goals and what challenges you face.

As part of this, it’s important to feel comfortable with your financial adviser – if you don’t feel like your values match or feel uncomfortable with them, then keep looking for someone who feels like a better fit for you. It’s your portfolio, so make sure you feel great about the person helping you with it.