Portfolio Management Process

At D3 Financial Counselors, we believe that a sound investment strategy must be executed using a sound process, taking into account an ever-changing investment landscape and our clients’ evolving goals.  See below for an overview of our daily, monthly, quarterly, semi-annual, and annual portfolio management procedures to ensure our clients’ investment strategy is being implement using a sound process:

Daily Activity

  • Ensure our clients portfolios are within asset allocation tolerance thresholds.
    • If a portfolio falls out of tolerance, we will take corrective action by placing trades to bring your portfolio back to your desired asset allocation model.
    • This is important because it gives us an automated method to buy low/sell high and takes the emotion out of investing.
    • We receive daily notifications through our portfolio management software to make us aware of any portfolio that falls out of allocation tolerance. See image below.

  • Monitor accounts for any unwarranted transitions and contact clients to ensure legitimacy
    • This is done to ensure that there isn’t any fraudulent activity in any of your investment accounts.
  • Invest money clients have contributed that day
    • This is done to ensure your contributions are put to work in the market in a timely manner.
  • Raise cash for clients that may have withdrawn money that day or will need to in the near future
    • It is important for our clients to have adequate liquidity in their accounts in case any unexpected expenses arise. By keeping an adequate cash balance, we won’t be forced to sell a fund at an inopportune time in the market.
  • Monitor price movement of all funds on the preferred list of mutual funds and ETFs
    • To track performance of a fund compared to its benchmark looking for movement that is out of line with our expectations.
  • Reconcile holdings reported by custodian to our portfolio management software and correct any discrepancies as needed.
    • This is important to ensure the data we are using to trade and rebalance accounts is accurate
  • Receive daily notifications from Morningstar, which could be triggered by several events, such as a manager change, analyst rating change, change in expenses, and change in equity or fixed income style box.
    • We use these notifications to ensure that we have up to date information regarding our funds investment strategy.

Monthly Activity

  • Internal review of all client portfolio performance.
    • This is important to ensure a client’s portfolio’s returns are consistent with the asset allocation model they have selected.
  • Meetings with fund representatives to gain insight on fund investment strategies.
    • It’s important to gain an understanding of a fund manager’s methodology and investment philosophy when determining whether or not to invest in a fund.

Quarterly Activity

  • Raise cash for clients taking distributions from accounts.
    • It is important for our clients to have adequate liquidity in their accounts in case any unexpected expenses arise. By keeping an adequate cash balance, we won’t potentially be forced to sell a fund at an inopportune time in the market.
  • Invest dividends and capital gain distributions that have accumulated over the quarter.
    • This is an important step to keep a portfolio within its asset allocation tolerance. As funds pay out dividends and capital gain distributions, we invest these cash balances in underweight asset classes as a mechanism to buy low/sell high in a tax efficient manner.
  • Review all fund options performance in held away accounts, such as employer sponsored retirement plans (401k, 403b, 457, etc.), and make changes in fund selection if warranted.
    • It is important to periodically review fund performance in held accounts to recognize how a given fund is performing relative to its peers. If a fund has significantly underperformed expectations, it may be appropriate to consider changing funds.
  • Sell funds at a loss to offset taxable capital gains for the year. This is also known as capital loss harvesting.
    • This is an important step to ensure we are providing clients with tax-advantaged portfolio management. By selling funds at a loss for the quarter we can use any realized losses to offset taxable capital gains realized in the same year.

Semi-Annual Activity

  • Review performance of every portfolio against market benchmarks and review with clients.
    • This adds value to our clients by giving them an accurate reflection of how their portfolio has performed relative to industry benchmarks, and more importantly, the return needed to achieve their financial goals.

Annual Activity

  • Reconcile fund options from held away accounts’ websites to what we have in our records. If funds have been added or removed, update our records and consider changing fund selection.
    • This is an important part of our held away account investment analysis. Without an accurate representation of what funds are available, it’s impossible for us to ensure clients are invested in the best possible funds.
  • Revisit capital market and return assumptions.
    • By revisiting our capital market and return assumptions every year, our investments team can take a step back from recent performance and objectively review return assumptions for each asset class. This adds value to clients because stale capital market return assumptions are likely to lead to inaccurate retirement cashflow projections.
  • Make asset allocation adjustments based on long term economic outlook.
    • Adjusting asset allocation based on long term economic outlook ensures our investment models deliver appropriate risk/return exposure given ever changing global economic conditions.